Investment Advisor Audits FAQs

  1. Do I have discretionary authority?
    If you make the decision for your client and implement that decision without further approval from the client, then you have discretion. But if you only make recommendations to your client and they have the final approval then you do not have discretionary authority.
  2. In an investment advisor audit, why do auditors ask questions about my insurance and broker dealer activities?
    The auditor needs to have a general understanding of all the activities of the investment advisor to identify any potential conflicts of interest that might need to be disclosed.
  3. Why are your auditors looking at my personal accounting records?
    Rules require advisors to maintain an accounting record for the advisory business. If you are a sole proprietor and you co-mingle your personal accounting records with the firm’s accounting records, the auditors will review your personal accounting records and suggest that you maintain a separate accounting record for the advisory business.
  4. Why do auditors look at my personal brokerage account?
    The auditors are searching for possible conflict of interest.
  5. Do I need a written contract for individuals that I do not charge advisory fees?
    The Division expects you to maintain a written contract with all individuals since it is likely that you will be receiving some form of compensation. If any form of compensation is received, a written contract is required by law.
  6. Why do I need a privacy policy statement?
    The privacy policy is a federal law that requires investment advisors to provide clients with a written privacy policy each year. In addition, the Division rule relating to privacy prohibits investment advisors from releasing clients’ personal information without their written consent.
  7. What happens if I fail to correct deficiencies in the audit letter?
    Repeat deficiencies disclosed in future audits could very likely result in formal enforcement action.
  8. How often are audits conducted?
    The Division tries to conduct an audit of new investment advisors within the first two years of operation. Subsequent audits are conducted every three to five years.
  9. How long does it take to complete an audit?
    Investment advisors should plan on one full day for the typical audit but more involved audits may take two to three days.
  10. How long should I keep my records?
    As a general rule records must be maintained for five years, with the first two years maintained in the advisor’s principal place of business. Refer to 21 VAC 5-80-160 E for the specific records retention requirements.
  11. Who should a broker-dealer contact with questions or comments regarding an audit?
    For questions or concerns regarding specific audits already conducted, broker-dealer personnel should contact the auditor(s) that audited their firm. The Chief Auditor of the Division of Securities and Retail Franchising may also be contacted at 804-371-9051.