Archive for December, 2011

Listen to Dan Bernstein from the Schwab IMPACT conference

Wednesday, December 21st, 2011

Check out Dan Bernstein along with Mike Byrnes and Bill Winterberg on “Building a Compliance-Friendly Social Media Strategy” panel discussion.

You can now download the audio recording of session by clicking on the following link:

Presentation URL link

Code: EZQQ9585

Please note: This audio recording is for archival use only.

SEC Enforcement Wave Has Arrived

Wednesday, December 21st, 2011

On December 4th, Investment News reported on the SEC’s move to step up RIA enforcement actions against advisers who lie on their registration forms.  “For us, it’s advisers who lie about graduating Phi Beta Kappa, conceal their association in a past failed business venture or inflate their assets under management, who might well be the same persons who outright steal [investors’] money when the markets turn against them,” said Robert Khuzami, director of the SEC’s enforcement division.  Robert Kaplan, co-chief of the enforcement division’s asset management unit in charge of conducting the RIA investigations, said, “the decision to be active in [the RIA] space is recognition that this is where there are risks, and this is where we should be allocating more resources.”  The unit will be concentrating on asset valuation, performance and ADV misrepresentation, disclosure of conflicts of interest, and compliance infrastructure.

To emphasize that they’re serious, the SEC, in a late November release, announced enforcement actions against the CCOs of three RIAs, as reported by IAWatch.  The end results: two firms were ordered to dissolve and the other was hit with a $200,000 penalty (but allowed to remain in business).  The means to these ends: failure to take the jobs of compliance seriously. If a silver lining can be found in these enforcement actions, it’s that the SEC allowed the one firm to remain in business because it took swift remedial actions in response to SEC findings and because it didn’t involve uncorrected deficiencies from an earlier exam.  The point is, correct prior exam deficiencies immediately.  The two firms that were forced to deregister failed to respond adequately to earlier exam deficiencies.

Internal Changes at SEC’s Exam Division

Wednesday, December 21st, 2011

With the SRO debate continuing into the new year, it appears the OCIE is not waiting and is working on some enhancements to investment advisor examinations.  In an article in the December 2011 edition of Investment Advisor Magazine, Carlo di Florio, director of OCIE recently spoke about some of the up coming changes.

The SEC feels that “ethical cultural objectives should be central to an effective regulatory compliance program”.  For this reason, how firms are manging their fiduciary responsibilities both within the spirit and letter of the law is becoming a central focus during examinations.

This type of ethical environment as the SEC calls it,  is becoming central to the SEC’s new risk-based examinations.  The SEC has been interviewing firms to understand the the key risks they are facing, how those risks are being managed and the effectiveness of the firms risk management process.  Determining these risks and how firms are managing them is allowing the SEC to assess the tone and culture around compliance. di Florio stated that if the examiners uncover a tolerance of “nonchalant attitude toward compliance, ethics and risk management”, that this would be factored into their analysis of the firm and identify where a examiner should focus their efforts during an exam.

The article also states that OCIE is also reviewing its own internal compliance management program with a view towards strengthening and monitoring how well OCIE is following its own process and guidelines.  They are also working on an exam manual that identifies the divisions key policies and standards around examinations and enforcement.


Preparing Your Business For Sale

Monday, December 19th, 2011

A New York Enterprise Report article by Sun Mergers and Acquistions managing partner, Stephen Goldberg, provides a good checklist for increasing the marketability of your company.

1. Recast Financial Statements – to reflect discretionary cash-flow available to the new owner such as current owner and family member salaries, benefits and perquisites and to adjust for any extraordinary expenses.

2. Develop a Growth Plan – a roadmap to expansion opportunites that a new owner could exploit, assuming additional resources were available.

3. Tackle Deal-Killers Early On – including things like a lease that needs to be negotiated, financials that need to be revised, pending litigation and key employee retention.

4. Address Key Dependencies – mainly in the areas of customers, vendors and employees.

5. Carve Out Excess Assets – convert excess assets into cash prior to sale.

6. Likely Acquirers – Identify likely prospects such as such as related businesses seeking additional sales, territories, capabilities
or complimentary revenue centers.

6. Independent Valuation – get an independent evaluation to get a sense of a realistically achievable value and
enable you to confirm in advance whether it makes financial sense to sell your business.

7. Current Sales Performance –  make sure that sales performance does not deteriorate during the deal process.

5 Strategies for a Successful Acquisition Deal

Monday, December 19th, 2011

This New York Enterprise report article discusses how to minimize risks associated with purchasing another company.

1. Strategic Acquistion Plan – Create a strategic acquistion plan that articulates the motivations for acquistion.  Is it,
for example, to growth faster and easier, geographic expansion, vertical integration or other strategic reasons?  The plan will include an analysis of the strengths and weaknesses of your company and competition, a strategic acquistion plan and identify potential acquistion targets.

2. Acquisition Criteria – Develop specific acquisition criteria including specific industry sector, revenue and cash-flow parameters, location, majority/minority investment preference and any other criteria important to you.

3. The Acquisition Team – Honestly evaluate your management team’s talent and bandwidth to plan, find, negotiate, integrate and manage an acquistion.  Build the appropriate internal and external deal team up front for greatest success.  That team often includes key internal management, a mergers and acquisitions attorney, investment banker, outside accountant and outside tax experts.

4. Financial Due Diligence and HR Issues –  Financial and human resource due diligence is crucial.  The investment bankers and accounants will assist with this.

5. Purchase Agreement – Legal documents such as a Letter of Intent and, finally, the purchase agreement that document the terms of the deal and the related structuring and negotiations are the final element in an acquisition.

Overcome a Business Plateau

Monday, December 19th, 2011

A New York Enterprise Report article by Corey Masella, CPA addresses the decision of whether to pursue organic growth versus non-organic growth such as a merger when a business hits a plateau and how financial analysis can help with that decision.  Well established profitable businesses often hit plateaus.  These can be triggered by the business owners finding themselves taking fewer risks and making fewer investments or issues such as changing customer requirements, customer consolidations, increased competition and industry-wide changes.  Plateaus can be identified by some simple financial analysis such as slowing of customer acquistions, flatlining or decline of average customer revenue, leveling or dropping of gross-profit margins and a lack of growth or reduction in product turnover or service staff utilization.  There are other signs as well such as a reduction in the rate of new product or service introduction and innovation.

By reviewing and understanding these and other metrics and comparing them to competitors and industry standards, you can determine where there are opportunities for improvement and organic growth at the rate you desire or whether merger or acquisition may be a better option to achieve your growth goals.

5 Rights of a Business Owner

Monday, December 19th, 2011

A New York Enterprise Report Article, by Barbara Kurka, with the sub-title, Respecting employees’ rights does not mean you have to compromise yours, sets forth certain practical key rights of a business owner.  They are:

1. The right to set clear expectations – clearly set forth in writing what you want from your employees.

2. The right to expect top performance – although all business owners will say that they expect top performance, many are reluctant to articulate what top performance is and how to achieve it and many accept inefficiencies rather than addressing performance issues.

3. The right to make changes – many managers give up on trying to change their employees’ behaviors to the detriment of success of the business.

4. The right to let employees go – if there is a lack of necessary skills or a mismatch with the business culture, it is time to end the employment.

5. The right to make mistakes (and fix them) – when you make a mistake (and everyone does), you increase employee trust and respect when you speak it, correct it and move on.

State Securities Regulators Launch Coordinated Review Program for Investment Advisers

Wednesday, December 7th, 2011

NASAA has developed a coordinated review program for investment advisers switching from federal to state securities regulatory oversight as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Dodd-Frank Act requires investment advisers with assets under management of between $25 million and $100 million to switch from federal to state registration by mid-2012. “This initiative provides investment advisers registering in multiple states with an easier way to navigate the switch to state registration and gives states an opportunity to coordinate and resolve issues about potential problems with applicants,” said Jack E. Herstein, NASAA President and Assistant Director of the Nebraska Department of Banking and Finance Bureau of Securities.

The Investment Adviser Coordinated Review Program is open to SEC-registered investment advisers switching their registration to between four and 14 states. The program will conclude on March 30, 2012, Herstein said.  To participate in the program, eligible investment advisers must complete and submit the Coordinated Review Form found in the IA Switch Resource Center on the NASAA website ( in addition to filing all materials required by the states in which the adviser is applying for registration. The states where the investment adviser has filed a registration application will conduct a coordinated review of the investment adviser’s registration materials. After completion of the review, the adviser will be informed of the deficiencies, if any, that must be resolved before the registration will be approved.

Herstein said there is no additional cost to use the program. “Advisers will be subject only to the filing fees specified by the states in which the investment adviser is applying for registration.”

Could advisers outsource routine compliance examinations to independent auditors instead of an SRO?

Wednesday, December 7th, 2011

Investment News reported today that the debate over whether a self-regulatory-organization should be the force to increase examinations of investment advisers took on a new option in November. In a report, Georgetown University professor James Angel suggested that advisory firms could outsource routine compliance examinations to independent auditors. The TD Ameritrade-sponsored study, however, met with near immediate opposition (see story) from the brokerage industry and doesn’t seem to be going anywhere. Meanwhile, the most discussed idea, having an SRO like the Financial Industry Regulatory Authority Inc. take on this role, was criticized by Rep. Barney Frank (see story), D.-Mass. The 30-year congressman and ranking member of the House Financial Services Committee said he’s skeptical of bringing in an outside group and suggested Congress should give the Securities and Exchange Commission the money it needs to conduct more exams. SEC Enforcement Director Robert Khuzami told Congress the commission can now inspect only 8% of all investment advisers each year.

State Regulators Accounce Reviews For Midsize Advisors

Monday, December 5th, 2011

As reported in InvestmentNews, state regulators today announced a coordinated review program for midsize investment advisers who will have to switch to state oversight.

To participate in the program, advisers must submit a coordinated review form found at NASAA’s Switch Resource Center website, as well as all required documents, such as ADV forms, client contracts and financial information. There is no cost for using the service.

A program manager will act as facilitator in coordinating state reviews, but final authority to approve applications remains with each state.