Investment Adviser Guide
The Division conducts periodic examinations of the business and records of registered investment advisers, at such times and in such scope as the Division determines. The examinations are not conducted with an eye toward finding evidence of violations which will lead to enforcement action against you or your employees. Rather, we review your procedures and records to identify areas where changes are needed to ensure compliance with all regulations and to help you conduct your business in the most forthright manner with your clients. Proper record retention can also be a valuable tool should a dispute arise and you need to demonstrate the nature of your account relationship and the investor protections you have afforded your clients. In most cases, a pre-examination questionnaire will be sent to update the staff's information used for determining the scope of the examination. Some examinations are made without prior notice. However, the staff will usually contact you a day or two in advance to ensure you or someone with access to information and records needed in the examination will be available and to advise you of the records you need to have ready for inspection. In any event, the adviser must make someone available for the examination during normal Division business hours, Monday through Friday, between the hours of 8am and 5pm. The staff will try to be as flexible as possible but must nevertheless conduct their examination in a timely manner.
Newly registered investment advisers can expect their first exam sometimes after they have been registered for six months. This exam allows the staff to review your recordkeeping and procedures to identify any areas that need attention early on. Getting off on the right foot will mean fewer problems down the road. Subsequent examinations will be scheduled at regular intervals, taking into consideration the type and amount of business conducted and the Division's experience with the adviser. Advisers who actively manage client accounts can expect to be examined on a three year cycle. Identification of increased risk factors may increase the frequency of those examinations. Advisers providing other types of services, such as consulting, financial planning or third party solicitation activity can expect to be examined less frequently but nevertheless, should expect an exam every three to five years. If serious deficiencies are noted in an examination, an unannounced follow-up exam may be conducted to review the changes made to correct the deficiencies.
The fee for an examination conducted in Wisconsin is $100 per day per examiner ( § DFI-Sec 7.01(3)(d), Wis. Adm. Code ). This fee is not adjusted for examinations that are less than a full day and are invoiced with the examination report which is mailed to you after the on-site examination is completed. Payment should be remitted to the Department of Financial Institutions upon receipt of the invoice. Any questions should be directed to the examiner in charge of the examination.
When conducting an examination, it is essential that the examiner gain an understanding of your operations. An initial interview with principals and managers will cover information regarding how you or your firm markets itself to new clients, the kinds of advisory services being provided, and the types and number of clients serviced by the adviser. A list of the office personnel and their duties will be requested along with information regarding the preparation, filing and retention of your books and records. Supervisory and internal control procedures will also be discussed during the initial interview.
Thereafter, the examiner will review a random sample of your books and records, including but not limited to the records listed in the books and records section of the Code. The examiners may, at their own discretion, ask to review any other records which may have a bearing on the operations or relationships of your investment advisory business or any of your employees. Most examinations take less than one day to complete.Section 551.411(4), Wis. Stats., permits the examiner to …“copy, and remove for audit or inspection copies of, all records the [examiner] reasonably considers necessary or appropriate to conduct the audit or inspection.” In most cases, this means the examiner may request or make copies of any documents the examiner requires for further review to complete the exam. Only on extremely rare occasions will an examiner ask to take original copies of your records.
At the conclusion of the on-site portion of the examination, the examiner may review the findings with a principal or manager. In some instances, the examiner may ask that additional information be sent to the examiner's office and any additional questions that arise will be addressed in the exam report letter. A written examination report will always be sent to the investment adviser, usually within two weeks of the on-site examination. The letter will note any deficiencies or concerns the staff had as a result of the examination. Deficiencies are possible violations or significant problems in procedures or record keeping which must be addressed. Concerns are situations that do not rise to the level of violations or serious operational problems, but are areas which may result in more serious problems in the future and which the staff will bring to your attention for your consideration. Any deficiencies or concerns noted by the staff must be adequately resolved or addressed by you before the examiner will close the examination.
Division examination records are confidential and, by law, are not open to the public under public records laws. The Division may share information from exams with other regulatory or law enforcement agencies that make a reasonable request. Any information relevant to an enforcement action which was developed from examination findings is available to the public to the extent it establishes the violations the administrative action is based upon.
While you are no longer subject to routine inspections by the SEC, a for-cause inspection may be conducted if the SEC staff believes there has been a violation of the anti-fraud provisions of the Investment Advisers Act.