By: Kevin Sullivan, Guest Blogger and Director of Compliance
Published September 26, 2018
While audits are a reality for every financial advisor, it’s not necessarily the thing you look forward to most. On a recent Office Talk Call, our compliance experts Mike Robbins, Assistant Vice President of Branch Examinations for LPL, and Klaudia Maslo, LPL Registered Principal, gave us insights on how advisors can face branch exams confidently knowing they are prepared and ensuring they understand all the components of the process.
It really starts with your attitude. Mike says, “It’s a collaborative partnership,” and the goal of the audit is not to catch you doing something wrong, it’s simply a second set of eyes on process and procedure, keeping both your practice and clients protected.
The Branch Exam Process
Typically (except in those rare cases of a surprise visit) you’ll have about three weeks advance notice of your audit. That’s plenty of time to get prepared, especially if your office is organized and pays attention to protocol and procedure already. If for some reason an auditor shows up at your door unannounced, don’t assume it’s for nefarious reasons. Branch examiners are required to do unannounced exams 15-20% of the time. When the auditor arrives, they will need access to all of the computers being used for securities business. They’ll be checking desk spaces and workplace areas as well. There’s a lot of ground to cover, but the time it takes to complete an audit really depends on the size of your office and scope of your practice. For satellite offices, it could be as quick as 30 minutes, while for large companies as long as a few days.
Recently there have been a few new steps added to the on-site audit process. You’ll now be a part of an exit interview, where the auditor will go over the findings with you before leaving. Rather than being taken by surprise, you will know what information will be presented in the letter issued to you within 30 days of the audit.
What to Do when your Branch Exam is Scheduled
ClientWorks has an entire area for compliance with files accessible to you that can help you prepare for your exam. Here’s what could be useful:
Before the Branch Exam:
- Record Keeping – This is a list of records you are required to keep at the branch. Use it as a checklist.
- Branch Exam Readiness – You’ll find helpful information regarding branch exam preparation documents and common exam findings.
- Out of Office (OOM) – This is a system used to schedule time away from the office. If you’re out of town, be sure to document it here so auditors know not to arrive for a surprise visit!
- Common Branch Exam Findings – Prepare for your next branch exam by getting familiar with the most common deficiencies found by LPL Financial branch examiners.
After a Branch Exam:
- LPL Branch Exam Ratings – Understand the rating system for your branch exam results: satisfactory, needs improvement, and unsatisfactory.
- Branch Exams System (BEMS) – Follow the user guide for the BEMS system and access BEMS to respond to your exam letter.
Is it Over Yet?
Your audit is over! What a relief. But that is not the end. The letter you receive within 30 days of the audit itself requires a response. And it’s not just your response that matters here; it’s how you respond. If you’ve received an unsatisfactory rating or committed a policy violation, you may feel frustrated and upset. It’s best to remember that your response to the letter is officially documented and it is also a reflection of you and your practice. Keep your emotions in check by being as professional as possible, and focus on resolving any issues or making changes in your branch so an oversight doesn’t happen again! Do your best to be thorough in your response, to avoid a never-ending back-and-forth dialogue.
Be aware of Common Branch Exam Faux Pas
It happens. Sometimes there are things that slip through the cracks, but take some time and check your processes for some of these common advisory practice deficiencies and the more serious significant findings. You’ll be thankful when you catch them first, before the audit!
- Advisors not documenting annual client contact
- Annuity delivery receipts
- BCP reviewed/updated within past year
- Unapproved social networking sites
- Laptop encryption
One area that leads to many questions is unapproved social networking sites. As a reminder, the only three social sites approved for use by LPL are LinkedIn, Facebook, and Twitter. LinkedIn by its very nature is a professional site. If you make any mention of your securities practice, your DBA, or there are links to your practice, make sure you check with your compliance office regarding your social profile.
Top Significant Findings
- Email Policy Violation
- AOE Violation
- Document Signature Policy Violation
- Instant Messaging & Texting
- Outside Business Activity Violation
A frequent oversight here is email policy violations. Even sending yourself something as innocent as an article for weekend reading to your personal account while at the office will subject your personal email account for communications review. Err on the side of caution by keeping work and personal emails separate and you’ll sail through your branch exam.
You should feel confident armed with all the knowledge you need to earn a resounding satisfactory rating on your next branch exam. There’s no need to sweat it; download your documents today in preparation and start doing a little internal audit to save yourself from a disappointing outcome later on.