Securities Division – Audit Unit
Quarterly Report – First Quarter 2010
The Audit Unit in the Missouri Securities Division releases a quarterly report that provides information on audit activities, common deficiencies and best practices.
Audit Statistics for the First Quarter 2010
Number of audits opened (onsite audits and desk audits) |
23 |
Number of audits closed (onsite audits and desk audits) |
23 |
Number of “for-cause” audits |
3 |
Number of specific “cognitive decline” sweep audits |
9 |
Number of audits referred to Enforcement Section |
2 |
Number of new registered broker-dealer firms |
42 |
Number of new registered state-covered investment adviser firms |
7 |
Number of new notice-filed federal-covered investment adviser firms |
60 |
Top 5 Deficiencies
The Audit Unit inspects broker-dealers and investment advisers and notes deficiencies in their compliance with Missouri statutes and regulations. The following were the top five most common deficiencies found in the first quarter of 2010:
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Missing, incomplete, inaccurate or otherwise non-compliant client agreements;
Out-of-date, incomplete or inaccurate Form ADV Part II;
No privacy policy for fim and/or policy not annually offered to customers;
Lack of client suitability information; and
Deficiencies related to fees – fees charged no correct based on client agreement and/or not disclosed properly to client.
Best Practice Recommendations For Investment Advisers
The following are examples of best practices employed by investment adviser firms, discovered in the course of audits. This list is not exhaustive or meant to supplant a thorough reading of all statutes and regulations related to firm compliance.
Review Form ADV Parts I & II and Form U4 for the firm and associated individuals at least annually, and amend inaccurate responses.
File Form ADV Part II online.
Maintain detailed information relating to the firm’s billing and fees, including documentation of the assets on which the fees were calculated, how the fees were calculated, copies of any invoices sent to customers as well as to custodians, and documentation of when fees deducted directly from clients accounts were withdrawn.
Maintain current client suitability information.
Maintain records, including electronic records such as e-mail and other correspondence, in a manner that allows easy accessibility to auditors.
Cognitive Decline Sweep
In the first quarter of 2010 the Audit Unit prepared for and began a sweep of broker-dealer and investment adviser firms to gather data and information about how firms address and respond to issues faced by Missouri’s elderly investors. The sweep focuses on issues related to the cognitive decline many older Americans may experience, how firms screen for decline amongst their senior clients, what special compliance policies firms have in place in order to address these issues, and how thoroughly these policies are being implemented. This “Cognitive Decline Sweep” was implemented by adding cognitive decline questions to customary exam modules, as well as by conducting several audits focused solely on cognitive decline. The sweep will continue into the second quarter of 2010, and a report will be issued in the Summer of 2010.