Investment Adviser | Broker Dealer | Hedge Fund | Client/Investor Services

Investment Adviser

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INVESTMENT ADVISER INTERNAL INSPECTION (Back to Services Menu)

ComplianceWorks experienced staff conducts a thorough and precise inspection of an adviser's compliance program that meets the requirements for an annual inspection as stipulated by the 1940 Investment Advisers Act as amended. The inspection examines the key processes used in the administration of the compliance program by interviewing management and staff members and examining documents produced by the adviser. While the inspection is not as detailed as a regulatory audit, it will bring to light areas of concern in the adviser's compliance program. Additional documents are examined in areas that appear to have a weakness to determine if the issue is "one-off" or if there is a systematic problem in the compliance program. The standard areas examined by the ComplianceWorks' inspection include the following:

ComplianceWorks may customize the inspection at the client's request. Upon completion of the onsite inspection, ComplianceWorks staff provides an exit conference to discuss findings and provide an opportunity for adviser clients to provide further input. All clients are provided a full written report (electronic or hard copy) for all inspections performed. As requested, ComplianceWorks staff will work with the adviser on solutions to issues and amend its compliance program to enhance the firm's compliance programs.

INVESTMENT ADVISER COMPLIANCE PROGRAM CREATION/REHABILITATION (Back to Services Menu)

For a myriad of reasons, compliance programs can fall materially behind in its procedures, documentation and organization relative to current standards. The scope of the problems are beyond a few hours to correct as often there are underlying structural problems that need to be addressed. Typical symptoms of a compliance program that would need to be rehabilitated include:

These situations call for a structured approach toward evaluating, planning the corrective phases and implementing a new system of administration of a firm's compliance programs. For firms in this position, it behooves them to be proactive in seeking help and addressing the issues prior to regulatory audit. Often compliance programs in this situation contain serious problems that may force regulators to escalate their response to ensure the firm's future compliance. Not only do these escalations cost significantly more than just committing resources to fix the problems, they also damage the firm's reputation as the firm is required to disclose to clients and potential clients its prior failures in the compliance program.

The first step in determining the degree and depth of the problems is to get an expert assessment of the existing compliance program. ComplianceWorks' staff will generally use the internal inspection to conduct the assessment (which also fulfills the annual requirement for annual inspection in any case), although it can be done through other means as well. Based on the assessment, ComplianceWorks staff will sit down with senior management to discuss the problems and make appropriate recommendations whether it is a case of several minor fixes, to several visits by a compliance professional to patch the holes, or if compliance program rehabilitation is required.

ComplianceWorks takes a methodical, structured approach towards the rehabilitation of a compliance program. After the assessment phase, it is clear what the problem areas are and the firm is placed in a process that addresses structural problems as well as documentation problems. The rehabilitation process goes through six phases to bring the firm to an appropriate level of compliance. The six phases are:

1. Assessment - as discussed, an assessment is conducted to determine where and to what extent problems exist while at the same time fulfilling the annual inspection requirement.

2. Structural - If written procedures are the foundation of a good compliance program, corporate structure is the rebar that makes effective compliance possible. Reporting lines are clarified and incidences of self-supervision are eliminated (even in smaller firms).

3. Written Procedures - the compliance manual is brought up to date with current regulation and is then customized for the firm's specific operations.

4. Filing System - the filing system is the reflection of a compliance program. All compliance tasks ultimately result in documentation. That documentation has to incorporate all key pieces of data, has to be organized in an effective manner, must be placed in a filing system that allows for prompt retrieval when necessary and has to be stored in an approved method of storage.

5. Procedure Implementation - the written procedures have to be implemented throughout the office. Our experience has shown that more often than not there are underutilized human resources in most firms that can be tapped to affect new compliance procedures and not have the compliance function require staffing increases.

6. Systematize the Compliance Function - THE MOST IMPORTANT PHASE IS CREATING A SYSTEM BY WHICH THE COMPLIANCE PROGRAM WILL BE ADMINSITERED GOING FORWARD. Without such a system, the firm will end up right back where it started in this process. Clear responsibilities are laid out whether it's in-house resources or with the assistance of third parties. Very few small to mid-size firms can effectively administer a compliance program using entirely in-house resources. Conversely, it is not generally desirable (both in terms of having an effective compliance program and cost) to have a third party to entirely administer the compliance program either. Thus, firms generally find a spot between the two extremes that fits the experience level of their in-house human resources and their budget for compliance expenditures.

This approach has been used numerous times to help firms present a more professional image to clients, particularly institutional clients, as it demonstrates a knowledge and commitment to keep client's safeguarded against unscrupulous investment firms. A ComplianceWorks client called the purchase of this process "cheap insurance" against regulatory or legal action. Indeed the cost of this program is generally smaller than all but the smallest regulatory fines and is far less expensive than any legal judgment against a firm. All it takes to get started is to commit to the assessment and thereafter a course of action can be established.

INVESTMENT ADVISER REGISTRATION (Back to Services Menu)

Whether it is for SEC registration or registration with one or more states, the process can be frustrating and ultimately more expensive if done incorrectly. ComplianceWorks' staff is experienced in making sure that the proper registration is filed for, that registration in all required states for a firm are accomplished through outright registration or notice filing. Equally important, the disclosures of the firm's operations, fee structure and conflicts of interest must be meticulously prepared in accordance with current standards. Failure to adequately disclose these items can lead to earnings disgorgement and punitive regulatory action.

ComplianceWorks provides the following services as needed in the registration of investment advisory firms:

ComplianceWorks will help you start your investment advisory firm the right way and help you understand and plan for what will be required of your firm by the regulatory authorities. The process of completing the process of installing and establishing a system by which the compliance program is administrated is similar to that of Investment Adviser Compliance Program Rehabilitation except for the segments that are completed as part of the registration process.

REGULATORY AUDIT RESPONSE (Back to Services Menu)

Whether it is the SEC or State regulators performing an audit of the compliance program, either will ultimately issue a letter of any deficiency findings of that audit. The response of a firm must be decisive and on point. The response must provide the regulatory authority a clear understanding of the corrective measures that the firm will take in the near term and the measures the firm will take to ensure that the deficiency will not be an issue in the future.

Not only does the response need to placate the regulator's concerns, it must be devised with an eye to the firm's operations and not be overly burdensome on the firm. ComplianceWorks specializes in devising corrective measures that make business sense for the firm and at the same time meet the concerns of the regulators. For certain issues, the resolution may require some negotiation with the regulatory body in order to achieve a mutually beneficial solution. The experience of ComplianceWorks staff is important for firms in this situation.

INVESTMENT ADVISER MISCELLANEOUS ENGAGEMENTS (Back to Services Menu)

Many times advisers are just looking for assistance in particular areas and not someone to come in with the idea of providing a more comprehensive approach. Some, but not all, of the specific areas advisers approach ComplianceWorks for assistance include:

Regardless of the scope of an engagement, ComplianceWorks is committed to helping small to medium sized investment advisers have an effective compliance program that fits within the budget.

ADDITIONAL INFORMATION:

POLICIES AND PROCEDURES DEVELOPMENT AND UPDATING

ELECTRONIC CORRESPONDENCE REVIEW

DUAL REGISTRANTS


Broker Dealer Services (Back to Services Menu)

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Broker dealer Internal Inspection (Back to Services Menu)

ComplianceWorks experienced staff conducts a thorough and precise inspection of a broker dealer's compliance program that meets the requirements for an annual inspection as required by FINRA. The inspection examines the key processes used in the administration of the compliance program by interviewing management and staff members and examining documents produced by the broker dealer. While the inspection is not as detailed as a regulatory audit, it will bring to light areas of concern in the broker dealer's compliance program. Additional documents are examined in areas that appear to have a weakness to determine if the issue is "one-off" or if there is a systematic problem in the compliance program.

The standard areas examined by the ComplianceWorks' inspection include the following:

ComplianceWorks may customize the inspection at the client's request. Upon completion of the onsite inspection, ComplianceWorks staff provides an exit conference to discuss findings and provide an opportunity for broker dealer clients to provide further input. All clients are provided a full written report (electronic or hard copy) for all inspections performed. As requested, ComplianceWorks staff will work with the broker dealer on solutions to issues and amend its compliance program to enhance the firm's compliance program.

ANTI-MONEY LAUNDERING TEST (Back to Services Menu)

For many smaller firms, it is not possible to achieve the requirement of independence where the person conducting the test cannot perform or be supervised by any person who performs any of the tasks to administer the AML program. Larger firms either require or prefer to have a third party to perform the test of this critical function. ComplianceWorks staff provides an independent and expert test of a firm's anti-money laundering program. The test consists of reviewing documents and conducting interviews of AML staff and supervisory personnel which address the following areas:

Test results are discussed with firm personnel to allow for further input and to discuss noted deficiencies. A final written report is provided that fulfills the required evidence of AML testing required by rule.

BROKER DEALER COMPLIANCE PROGRAM CREATION/REHABILITATION (Back to Services Menu)

For a myriad of reasons, compliance programs can fall materially behind in its procedures, documentation and organization relative to current standards. The scope of the problems are beyond a few hours to correct as often there are underlying structural problems that need to be addressed. Typical symptoms of a compliance program that would need to be rehabilitated include:

These situations call for a structured approach toward evaluating, planning the corrective phases and implementing a new system of administration of a firm's compliance programs. For firms in this position, it behooves them to be proactive in seeking help and addressing the issues prior to regulatory audit. Often compliance programs in this situation contain serious problems that may force regulators to escalate their response to ensure the firm's future compliance. Not only do these escalations cost significantly more than just committing resources to fix the problems, they also damage the firm's reputation as the firm is required to disclose to customers and potential customers its prior failures in the compliance program.

The first step in determining the degree and depth of the problems is to get an expert assessment of the existing compliance program. ComplianceWorks' staff will generally use the internal inspection to conduct the assessment (which also fulfills the annual requirement for annual inspection in any case), although it can be done through other means as well. Based on the assessment, ComplianceWorks' staff will sit down with senior management to discuss the problems and make the appropriate recommendations whether it is a case of several minor fixes, to several visits by a compliance professional to patch the holes, or if compliance program rehabilitation is required.

ComplianceWorks takes a methodical, structured approach towards the rehabilitation of a compliance program. After the assessment phase, it is clear what the problem areas are and the firm is placed in a process that addresses structural problems as well as documentation problems. The rehabilitation process goes through six phases to bring the firm to an appropriate level of compliance. The six phases are:

1. Assessment - as discussed, an assessment is conducted to determine where and to what extent problems exist while at the same time fulfilling the annual inspection requirement.

2. Structural - If written procedures are the foundation of a good compliance program, corporate structure is the rebar that makes effective compliance possible. Reporting lines are clarified and incidences of self-supervision are eliminated (even in smaller firms).

3. Written Procedures - the compliance manual is brought up to date with current regulation and is then customized for the firm's specific operations.

4. Filing System - the filing system is the reflection of a compliance program. All compliance tasks ultimately result in documentation. That documentation has to incorporate all key pieces of data, has to be organized in an effective manner, must be placed in a filing system that allows for prompt retrieval when necessary and has to be stored in an approved method of storage.

5. Procedure Implementation - the written procedures have to be implemented throughout the office. Our experience has shown that more often than not there are underutilized human resources in most firms that can be tapped to affect new compliance procedures and not have the compliance function require staffing increases.

6. Systematize the Compliance Function - THE MOST IMPORTANT PHASE IS CREATING A SYSTEM BY WHICH THE COMPLIANCE PROGRAM WILL BE ADMINSITERED GOING FORWARD. Without such a system, the firm will end up right back where it started in this process. Clear responsibilities are laid out whether it's in-house resources or with the assistance of third parties. Very few small to mid-size firms can effectively administer a compliance program using entirely in-house resources. Conversely, it is not generally desirable (both in terms of having an effective compliance program and cost) to have a third party to entirely administer the compliance program either. Thus, firms generally find a spot between the two extremes that fits the experience level of their in-house human resources and their budget for compliance expenditures.

This approach has been used numerous times to help firms present a more professional image to customers, particularly institutional customers, as it demonstrates a knowledge and commitment to keep customer's safeguarded against unscrupulous investment firms. A ComplianceWorks customer called the purchase of this process "cheap insurance" against regulatory or legal action. Indeed the cost of this program is generally smaller than all but the smallest regulatory fines and is far less expensive than any legal judgment against a firm. All it takes to get started is to commit to the assessment and thereafter a course of action can be established.

BROKER DEALER REGISTRATION (Back to Services Menu)

The process of registering as a broker dealer with FINRA can be lengthy, frustrating and ultimately more expensive if done incorrectly. The numerous documents that must accompany a registration submission present an onerous task for the uninitiated. ComplianceWorks' staff is experienced in making sure that the registration is done efficiently and addresses all the proposed operations of the new broker dealer. In an effort to keep costs down, ComplianceWorks with work closely with the representatives of the firm to divide up the tasks of document preparation. There are many documents that ComplianceWorks already has an inventory of base documents needed in the registration process. In addition, ComplianceWorks staff will help with regulatory requests for more information and assist in the preparation for a management interview with FINRA should they request one.

ComplianceWorks provides the following services as needed in the registration of investment advisory firms:

ComplianceWorks will help you start your broker dealer firm the right way and help you understand and plan for what will be required of your firm by the regulatory authorities. The process of completing the process of installing and establishing a system by which the compliance program is administrated is similar to that of Broker Dealer Compliance Program Rehabilitation except for the segments that are completed as part of the registration process.

REGULATORY AUDIT RESPONSE (Back to Services Menu)

Whether it is the FINRA, SEC or State regulators performing an audit of the compliance program, either will ultimately issue a letter of any deficiency findings of that audit. The response of a firm must be decisive and on point. The response must provide the regulatory authority a clear understanding of the corrective measures that the firm will take in the near term and the measures the firm will take to ensure that the deficiency will not be an issue in the future.

Not only does the response need to placate the regulator's concerns, it must be devised with an eye to the firm's operations and not be overly burdensome on the firm. ComplianceWorks specializes in devising corrective measures that make business sense for the firm and at the same time meet the concerns of the regulators. For certain issues, the resolution may require some negotiation with the regulatory body in order to achieve a mutually beneficial solution. The experience of ComplianceWorks staff is important for firms in this situation.

BROKER DEALER MISCELLANEOUS ENGAGEMENTS (Back to Services Menu)

Many times broker dealers are just looking for assistance in particular areas and not someone to come in with the idea of providing a more comprehensive approach. Some, but not all, of the specific areas advisers approach ComplianceWorks for assistance include:

Regardless of the scope of an engagement, ComplianceWorks is committed to helping small to medium sized broker dealers have an effective compliance program that fits within the budget.

Additional Information:

POLICIES AND PROCEDURES DEVELOPMENT AND UPDATING

ELECTRONIC CORRESPONDENCE REVIEW

DUAL REGISTRANTS


Hedge Fund Services (Back to Services Menu)

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HEDGE FUND REGISTRATION

Whether it is for SEC registration or registration with one or more states, the process can be frustrating and ultimately more expensive if done incorrectly. ComplianceWorks' staff is experienced in making sure that the proper registration is filed for, that registration in all required states for a firm are accomplished through outright registration or notice filing. Equally important, the disclosures of the firm's operations, fee structure and conflicts of interest must be meticulously prepared in accordance with current standards. Failure to adequately disclose these items can lead to earnings disgorgement and punitive regulatory action.

ComplianceWorks provides the following services as needed in the registration of investment advisory firms:

ComplianceWorks will help you start compliance program for your hedge fund firm the right way and help you understand and plan for what will be required of your firm by the regulatory authorities.

HEDGE FUND COMPLIANCE PROGRAM CREATION (Back to Services Menu)

Whether it is due to the requirements of potential institutional clients or the looming legislation that is likely to compel registration, hedge funds have started registering with either the SEC or states. Upon registration, the hedge fund is expected to have a compliance program just like all other registered advisers.

The creation of a compliance program calls for a structured approach toward evaluating, planning and implementing a new system of administration of a firm's compliance programs. ComplianceWorks staff will sit down with senior management to discuss the needs and unique features of the firm in order to begin devising the appropriate compliance measures. ComplianceWorks has staff members that are ex-CCOs of hedge funds and have extensive experience with hedge funds in other areas, not just compliance.

ComplianceWorks takes a methodical, structured approach towards the creation of a compliance program. After assessing the firm creation process goes through five phases to bring the firm to an appropriate level of compliance. The six phases are:

1. Structural - If written procedures are the foundation of a good compliance program, corporate structure is the rebar that makes effective compliance possible. Reporting lines are clarified and incidences of self-supervision are eliminated (even in smaller firms).

2. Written Procedures - the compliance manual is brought up to date with current regulation and is then customized for the firm's specific operations.

3. Filing System - the filing system is the reflection of a compliance program. All compliance tasks ultimately result in documentation. That documentation has to incorporate all key pieces of data, has to be organized in an effective manner, must be placed in a filing system that allows for prompt retrieval when necessary and has to be stored in an approved method of storage.

4. Procedure Implementation - the written procedures have to be implemented throughout the office. Our experience has shown that more often than not there are underutilized human resources in most firms that can be tapped to affect new compliance procedures and not have the compliance function require staffing increases. It is here that the unique aspects of a hedge fund are addressed in areas like disclosure, qualifying investors, tracking investors, providing and reporting return information just to name a few.

5. Systematize the Compliance Function - THE MOST IMPORTANT PHASE IS CREATING A SYSTEM BY WHICH THE COMPLIANCE PROGRAM WILL BE ADMINSITERED GOING FORWARD. Without such a system, the firm will end up right back where it started in this process. Clear responsibilities are laid out whether it's in-house resources or with the assistance of third parties. Very few small to mid-size firms can effectively administer a compliance program using entirely in-house resources. Conversely, it is not generally desirable (both in terms of having an effective compliance program and cost) to have a third party to entirely administer the compliance program either. Thus, firms generally find a spot between the two extremes that fits the experience level of their in-house human resources and their budget for compliance expenditures.

Establishing a compliance program has been used numerous times to help firms present a more professional image to clients, particularly institutional clients, as it demonstrates a knowledge and commitment to keep client's safeguarded against unscrupulous investment firms.

HEDGE FUND MISCELLANEOUS ENGAGEMENTS (Back to Services Menu)

Like regular investment advisers, hedge funds may need assistance on a number of issues on a case-by-case basis. Some of these issues are unique to hedge funds and require experience to adequately address. Some of these tasks include:

And some of the areas where a fund may need assistance are similar to those faced by traditional advisers:

ComplianceWorks is one of the few compliance consulting firms that has direct experience with all facets of the operation of hedge funds which allows it to tailor its solutions to compliance problems in a way that makes business sense for unique needs of hedge funds.

Additional Information:

POLICIES AND PROCEDURES DEVELOPMENT AND UPDATING

ELECTRONIC CORRESPONDENCE REVIEW

DUAL REGISTRANTS


Client/Investor Services (Back to Services Menu)

Investor Sponsored Inspection

A unique application of professional compliance help is available to investors and clients of regulated financial firms - primarily investment firms. Investors can augment their due diligence of a firm by having ComplianceWorks experienced staff conduct a thorough and precise inspection of an firm's compliance program as long as the firm agrees to be inspected. The inspection examines the key processes used in the administration of the compliance program by interviewing management and staff members and examining documents produced by the firm. While the inspection is not as detailed as a regulatory audit, it will bring to light areas of concern in the firm's compliance program. Additional documents are examined in areas that appear to have a weakness to determine if the issue is "one-off" or if there is a systematic problem in the compliance program.

ComplianceWorks provides a summary report of its assessment of the firm's compliance program to the investor. While the inspection will be modified based on the type of firm being examined and can be customized at the investor's request, the common areas examined by the ComplianceWorks' inspection include the following:


POLICIES AND PROCEDURES DEVELOPMENT AND UPDATING (Back to Services Menu)

What seems like a fairly simple, straightforward area is one of the areas that firms are most often deficient. Approximately 75% of a deficiency items in a regulatory audit are a result of deficient procedures. The fault lies with the failure to update the procedures for the way the firm conducts business rather than the firm acting in a manner that does not meet compliance standards.

Many compliance people approach written procedures and their implementation in the wrong way. They try to make the firm change its behavior and office procedures to match what the manual says it should be doing. In addition, compliance manuals are often cluttered with sections that do not apply to the firm or call for procedures that are excessive in their application to the firm's environment. A firm is deficient if it does not follow written procedure even if that procedure is more stringent than regulatory rules or guidelines.

ComplianceWorks believes that the manual should be written, to the greatest extent possible, to the existing firm procedures. True, there may need to be tweaks to existing procedure to heighten firm compliance, but rarely is there a complete overhaul of the procedures the firm has implemented by action. This approach tends to result in much greater compliance with written procedures and is generally welcomed by regulators as the written procedures are customized for the individual firm.

The other important considerations in the development and updating of procedures are to keep in mind the human and financial resources of the firm. Written procedures must make business sense if they are to stand a chance of being complied with by the firm. Procedures that are expensive or are beyond the availability or capability of staff will either be ignored or management will decide to risk an audit deficiency in order to avoid the cost.

So what appeared as straightforward is actually an art. Procedure development calls for the author to understand the operations of the business, how the firm earns revenues and where the compliance risks and conflicts of interest lie. ComplianceWorks excels in understanding the firm's operations devising an appropriate compliance system/solution rather than utilizing the cookie cutter approach across all firms.


ELECTRONIC CORRESPONDENCE REVIEW (Back to Services Menu)

One of the tasks that often falls behind or just is not done is the review of emails and other mediums of electronic correspondence. This task can be daunting for firms with limited human resources. Even small firms may need to review thousands of emails a month which can take hours of precious time. Often the individual in charge of compliance is also wearing many other hats and simply just does not have the time to perform email review adequately.

ComplianceWorks can provide assistance to completing the task or take it over completely. ComplianceWorks will evaluate the system of capturing emails, storing emails, reviewing emails and documenting the review and any corrective actions taken. Getting a reliable system to perform these tasks is integral in having an effective review program. Often these systems are relatively inexpensive as well.

Reviewing electronic correspondence calls for a regulators eye. The reviewer must scan an email for complaints or inappropriate language. Often it is difficult to discern the existence of language due to the way its phrased or because the reviewer is not objective. ComplianceWorks is experienced in rapidly reviewing communications and then taking the appropriate corrective action when a communication of concern is located. ComplianceWorks provides documentation of the results of its reviews and if requested will meet with the person in the firm monthly to discuss review results.

Once emails and other electronic correspondence have been flagged for review, the review process can be divided up in many ways. Some firms outsource the review of administrative staff, or senior management or as simple as a straight percentage just to lower the load. Often clients have ComplianceWorks search for other terms that they are interested in such as resume or discrimination. Once the system of outsourcing all or some of the email review is in place, you will be asking why it wasn't done sooner.


DUAL REGISTRANTS (Back to Services Menu)

Firms that are registered as both a broker dealer and a investment adviser face unique challenges in their compliance program administration. What areas overlap or are basically the same? When there are two different requirements, which one does the firm follow? Is it really two compliance programs?

All of the above are valid questions and the ComplianceWorks staff has direct experience as CCO of dual registrants and extensive experience in working with different dual registrants. Some the issues that dual registrants face include:

ComplianceWorks staff can provide guidance on solutions the take advantage of similarities between the differing bodies of regulation. ComplianceWorks can save the firm a great deal of unnecessary expense by devising a unique compliance program that meets the needs of the firm in this complex environment.