John Abusaid, a partner with the advisory firm of Halbert Hargrove in Long Beach, Calif., uses Avante. "We had FileNet prior to Laserfiche," says Abusaid, "but adopted Laserfiche as a better and easier solution, and are presently upgrading to Avante 8.0."
Interestingly, Halbert Hargrove hasn't been audited by the SEC since installing Avante in 2002. But the firm is prepared, nonetheless-it conducts mock audits with its compliance consultant MarketCounsel in Englewood, N.J.
Says Dan Bernstein, MarketCounsel's director of professional services, "We don't call our services 'mock audits.' We call them 'compliance verifications,' because we're not acting as if we're examiners approaching an audit from an adversarial perspective." Bernstein says the compliance verification consists of one or two days in which his team looks at what the advisory firm is doing well or not doing well. He characterizes the service as another version of the firm's consulting services.
"It's a way of testing whether what they have in place is working. We start off with a typical SEC request letter tailored to the advisor based upon his firm's risks and business plan. Then we spend some time helping the client be as effective as possible in demonstrating compliance. If we find they're not doing something properly, we go into a consulting role and help them fix the problem. So more of our work is done after the verification is completed."
What kinds of problems does Bernstein typically see?
"There's not one common problem affecting all firms, but rather problems usually center on simple stuff the advisor is doing but not properly recording. For example, every advisor must update his code of ethics quarterly or annually, but many can't find the document when asked for it by a regulator. They literally can't produce what's sitting right there in their offices."
Another example, says Bernstein, is the audit review of the advisory firm's advertising and/or general communications.
"They must be able to show they have a good supervisory system in place and they're reviewing communications going out to clients," he says. "Further, even if they do have good procedures in place, are they doing a good job of monitoring communications to make sure reps are promising returns or gathering testimonials?"
Abusaid says his firm last went through a compliance verification with MarketCounsel last year.
"Our last audit was in 2000, so we were nervous about our systems simply because they hadn't been tested in a long time.