Experience of the vendor

Conflicts of interest are explored. Correction of trading errors and paperwork mistakes at custodians are evaluated. Considerations given to selection of custodians are reviewed."

Must you actually carry out the procedures defined in this page from Mackensen's Compliance Manual, or is just having the page ready for the auditors enough? If your procedures say you meet quarterly to assess best execution, then you must meet quarterly, and you should file your minutes in your compliance manual for auditors to review. Easy? Perhaps not, but at least you don't have to re-invent the wheel.

Best execution is one of the more nebulous regulations, though. But it's not the only one.

How about compliance with the new proxy voting regs that went into effect March 10, 2003, wherein the SEC requires advisors to document their fiduciary efforts to vote proxies in the best interests of their clients, and to disclose to clients how they've voted? Deena Katz of Evensky, Brown & Katz in Coral Gables, Fla., has a well-developed procedure for compliance: "We vote client proxies for those assets we manage, and we put a record of how we voted up on our Web site, more for the SEC than for clients [who are less interested]."

In fact, Katz spells out her firm's proxy voting policy in the firm's compliance manual, saying:

"At the client's request, Evensky, Brown & Katz will vote security proxies in managed accounts. Permission may be withdrawn at any time. The firm policy is to vote proxies in favor of shareholder (i.e., our clients') interests. The following is a summary of guidelines used by the firm."

The firm's manual goes on to detail what its vote will typically be for routine proposals, non-routine proposals, corporate governance proposals, shareholder proposals and material conflicts of interest. The manual also states the firm's policy with respect to proxy voting disclosure.

Evensky, Brown & Katz goes one step further, though: "We have a compliance officer, which a lot of firms don't have," says Katz. "Our officer constantly reviews [regulations] that come out, and either incorporates them into our compliance manual or we meet and discuss them. She also uses a service-I think it's NRC-to keep updated on compliance issues that must be addressed and/or included in our compliance book."

We all might like to have a compliance officer keeping track of our compliance responsibilities, but what about smaller firms or sole practitioners for whom the cost of a compliance officer might be prohibitive? Jeff Schafer, of Schafer Financial Management Inc. in Englewood, Colo., operates alone and handles compliance duties himself. He is an SEC-registered advisor who's well aware of his regulatory duties. Schafer echoes a concern common among smaller practitioners: "These regulatory trends are unfortunate. It seems to me many regulations are just solutions in search of problems. It's ironic that SEC examiners want to see our advertising file and, meanwhile, mutual funds are raping and pillaging right under the SEC's nose."