(Dow Jones) As regulators focus more on verifying whether client assets actually exist, financial advisors should be focusing on their paperwork.

Many advisors wait until the last minute to sign authorizations that allow third-party custodians to share clients' positions with the Securities and Exchange Commission. That could hold up an SEC examination for weeks or months, says Norm Champ, associate regional director for examinations in the agency's New York regional office.

"To serve both of our ends, if you have assets custodied elsewhere, work now on how to authorize our verification," said Champ, during recent comments to an audience of compliance professionals.

Verification of customer assets is one of six areas the SEC is focusing on during its examinations. Others include supervision and sales practices, and internal controls, such as identifying conflicts of interest.

Contacting third-party custodians to confirm account balances became a standard part of SEC examinations as a result of the Bernard Madoff scandal. The SEC had looked at Madoff's operation but failed to follow up on their own examiners' recommendations that they dig deeper.

Problems arise when advisors haven't signed authorizations allowing custodians to hand over the information to the SEC, according to Champ. Those written authorizations should be given to custodians long before advisors even know they are going to undergo examinations, says Champ.

Authorizations are important because the SEC has faced challenges in obtaining records from entities it regulates, such as prime brokers that custody assets, unless it's conducting an examination, Champ told Dow Jones Newswires during a recent interview.

Delays can also occur when advisors use banks as custodians. These are not SEC-registered and may not make the agency as great a priority as their own regulators, Champ says.

Authorizations can take time, and that can extend examinations. A bank, for example, may ask several of its employees to review an authorization letter, and it may linger on their desks for a couple of weeks. Questions between the bank and advisor, followed by staff vacations or sick days, could extend the process. "Before you know it, we're waiting a month or two," said Champ, during the interview.

A lesson can be taken from the mutual-fund world, where verification is a usual part of the normal routine, says Amy Lynch, founder and president of FrontLine Compliance LLC in Leesburg, Va. Mutual-fund advisors typically agree to an authorization process when they first sign their custodial agreements, she says. That document also usually includes names of individuals who are allowed to interact with the custodian on behalf of the advisor.

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