Securities Division – Audit Unit
To view the Report on the 2010 Senior Investor Protection Audit Sweep, click here.
Quarterly Report – Third 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 Third Quarter 2010
| 3rd Quarter | Year To Date | |
Number of audits opened (onsite audits and desk audits) |
21 | 64 |
Number of audits closed (onsite audits and desk audits) |
37 | 76 |
Number of “for-cause” audits |
- | 5 |
Number of specific “cognitive decline” audits |
- | 24 |
Number of audits referred to Enforcement Section |
- | 3 |
Number of new registered broker-dealer firms |
34 | 109 |
Number of new registered investment adviser firms |
10 | 32 |
Number of new notice-filed federal-covered investment adviser firms |
28 | 112 |
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 third quarter of 2010:
Solicitor arrangements not properly maintained and/or disclosed properly to clients on form ADV.
Deficiencies related to fees – fees charged not correct based on client agreement and/or not disclosed properly to client;*
Out-of-date, incomplete or inaccurate form ADV Part II;*
Lack of client suitability information;* and
Failure to maintain the minimum required net worth for the firm.#
* Also included in Top 5 Deficiencies for First and Second Quarter of 2010.
# Also included in Top 5 Deficiencies for Second Quarter of 2010.
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 statues and regulations related to firm compliance.
At renewal time, be sure that the firm pays renewal fees for both itself and any investment adviser representatives.
When auditors request documents in advance of an audit, prepare them in advance. If you aren't sure how to prepare the documents, contact the auditor for guidance. Don't wait until auditors arrive to retrieve and prepare the requested information.
Firms must have written contracts with all clients and include details of the items outlined in securities statutes and regulations.
Be sure to maintain the required net worth for the firm. Be prepared to provide auditors with documentation demonstrating the financial information contained on its balance sheet and profit and loss statement.
Know how to access and use the reports available to the firm through custodians. Be prepared to provide these reports to auditors.
ADV Part 2
On July 28, 2010 the Securities and Exchange Commission (SEC) released a revised Form ADV [SEC Release No. IA-3060; File No. S7-10-00]. The release primarily adopted amendments to Part 2 of Form ADV (also referred to as brochure or new Part 2). The new Part 2, with the instructions, can be found on the SEC’s web site at http://www.sec.gov/rules/final/2010/ia-3060.pdf. The amendment is changing the formats of Part 2 from a check-the-box form to a narrative brochure written in plain English.
As of January 1, 2011 all new investment adviser applicants will have to file, through the IARD, the new Part 2 of Form ADV as part of their application. As of January 1, 2011 all licensed investment advisers will need to incorporate the new Part 2 of Form ADV with their next filing of an amendment to Form ADV. Between October 12, 2010 and January 1, 2011 applicants and current licensed investment advisers filing amendments to their Part II of Form ADV may use either the current Part II or the new Part 2.
The Missouri Commissioner of Securities is reviewing other ADV Part 2 matters and is considering issuance of an advisory release on the same.