Preparation for an SEC exam is not a one-time event. And the worst time to try and prepare is between the notification of an exam from the examiners and their arrival at the door. While no exam two exams are exactly alike, here's a rundown on the SEC's Top 10 areas of focus.

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prepared
for an
Are you
SEC exam?

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3. There
won’t be enough time
on the way.
to start preparing for an SEC exam
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once one is

4. prepare
The time to
now.
for
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that exam is

5. Where should
you start?
Top 10
Here are the
focuses of
SEC scrutiny.
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Focus Areas in SEC Examinations of Investment Advisors: The Top 10.
Speech by Lori A. Richards, Director, Office of Compliance Inspections and
Examinations, U.S. Securities and Exchange Commission, March 20, 2008

6. Controls over
Because many firms base client fees on the value of holdings,
the SEC wants to make sure holdings are not overvalued.
1 valuation.
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7. 2
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Controls over
The SEC is highly sensitive to insider trading. Does your firm have
a proprietary code of ethics, policies and procedures, and enforcement
mechanisms to prevent the misuse of “material non-public information?
non-public
personal
information
trading.and

8. Dealing with
senior investors.
3
What is your firm doing to protect senior clients from abuses of trust in
marketing, appropriate product selection, and other aspects of the relationship?
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9. Firms are required to implement internal compliance review and
risk-assessment programs. How effectively you are doing that is a
key area of interest to examiners.
Compliance
4
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and supervision.

10. Are the firm’s recommendations and investment decisions consistent with
its stated polices and with its clients’ objectives and restrictions? Examiners
look especially closely at the use of derivatives in portfolios.
management.
Portfolio
5
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11. Are the firm’s recommended brokerage arrangements consistent with
its fiduciary responsibility to protect clients’ assets and interests?
best execution.
Brokerage arrangements
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6
and

12. What policies and controls does the firm have in place to ensure fair
allocation of trades and avoid favoritism toward certain clients?
trades.Allocation of
7
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13. What measures are firms following to ensure that its performance claims are
accurate? The SEC says this continues to be an area of “high deficiencies.”
Performance
advertising, marketing and
fund distribution.
8
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14. Does the firm have effective policies to prevent
theft, loss or misuse of client assets?
Safety of client assets.
9
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15. Does the firm have effective procedures for capturing, maintaining,
and reporting information in its books and records?
processingInformation10
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protection.and

16. on-going
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for the SEC should
preparedBeing
be an
process.

17. red flags
Are there any
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to be aware of?

18. Any firm with $100 million or more in equities in discretionary accounts
must file quarterly 13F forms with the SEC listing those holdings and
their values. Failure to do so may trigger an examination.
Failure
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to make 13F filings.

19. Learn about more Red Flags to Avoid and
The 12 Steps to Prepare for an Exam.
Download the free white paper from Advent Software.
www.Advent.com/SEC
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