Securities Division – Audit Unit
Quarterly Report – Second Quarter 2011
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 Second Quarter 2011
| 2nd Quarter | Year to Date | |
Number of audits opened (onsite audits and desk audits) |
12 |
28 |
Number of audits closed (onsite audits and desk audits) |
13 |
28 |
| Number of pre-registration examinations commenced* | 18 |
28 |
Number of “for-cause” audits |
1 |
1 |
Number of audits referred to Enforcement Section |
3 |
3 |
Number of new registered broker-dealer firms |
30 |
67 |
Number of new registered investment adviser firms |
16 |
30 |
Number of new notice-filed federal-covered investment adviser firms |
23 |
57 |
* In September 2010 the Unit began conducting pre-registration examinations of investment adviser applicants.
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 2011:
Failure to maintain financial statements;
Failure to maintain the minimum required net worth for the firm;*
Inappropriate arbitration clauses in client contracts;;
Failure to deliver the ADV part 2;* and
Lack of client suitability information*
*Also included in Top 5 Deficiencies for The First Quarter of 2011.
Best Practice Recommendations For Investment Advisers
The following are examples of best practices employed by investment adviser firms, as discovered in the course of audits. This list is not exhaustive or meant to supplant a thorough reading of all statues and regulations related to firm compliance.
Review the Securities Division’s website at www.sos.mo.gov/securities for renewal filing procedures and answers to frequently asked questions related to registration requirements.
If the firm has Compliance/Supervisory Manuals, the firm should ensure that the manuals are current and that the firm follows the policies and procedures contained within the manuals.
Maintain records, including electronic records (such as email) and other correspondence, in a manner that allows easy accessibility to auditors.
Be sure that all the professional designations used on business cards and other materials, and included on Form ADV, are current.
Have the documents that were requested in advance prepared when the auditors arrive for the audit. If unsure how to prepare the documents, contact the auditor for guidance.
SEC Rules and Schedules finalized for Investment Adviser Transition to State Registration
Commissioner of Securities Matt Kitzi recently posted an advisory release with important information regarding the transition from federal to state registration for mid-sized investment advisers as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. You can access that release, and other important advisory releases, here.