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Preparing for the Interview Part of the Exam

Overview of the On-Site Component of the Exam 

The primary purpose of an exam by OCIE is to ensure compliance, prevent fraud, monitor risk and inform policy.

Interviews are a routine part of an exam. Most exams are risk-based and not-for-cause – and combine standard and variable elements customized to the advisor’s profile.

Typically these exams include interviews of senior management and supervisors at an early stage in the on-site meeting.

on-site component examTypical Structure of the On-Site Exam

The SEC staff arrives bright and early in the morning. You need to find a conference room to park them in. They spent about an hour getting their computers hooked up (they tend to use their own web access to their own secure server). They then refresh their knowledge of your documents and likely talk internally about each other about how they want to proceed.

Typically they have given the firm a schedule in advance that lays out what they intend to do and the order that they would like to talk to various people.

Remember – they can’t accept anything that can’t “get throw a straw” so don’t waste the time ordering the breakfast set up. They generally refuse even coffee and bring their own.

You should take the time to explain your expectations of the examination. You expect that they will coordinate all requests, of any kind, through the CCO. The CCO is their point of contact during the entire course of the exam. Provide them with the CCO name and contact details, including cell number. Request that they don’t wander around the offices unaccompanied. (This might be a good opportunity to get in front of this situation by giving them a guided tour of the office). Inform them of the hours of the Firm’s operations (which should correspond to the ADV disclosure).

If they need to come into the office at any time other than those normal operating hours, they should notify you in order to make proper arrangements. Give them instructions on how to use the phone system (Dial 9 for outgoing calls) Location of the rest rooms and give them some basic office supplies. Don’t go out of your way, just the usual materials already in the office, pens, sticky notes, pads, paper clips. Simple hospitality will go a long way. Inform them that additional document requests or follow up requests should be requested in writing and provide them with a form for such requests or an email account. This will make it easier for everyone to keep track of the follow on requests. We recommend that these helpful tips be documented in a “Welcome Kit” and left with the exam team in their conference room to avoid any confusion later on during the course of the exam.

Typical Interview Structure

Generally the SEC will conduct its initial interview with each person for between 30-60 minutes. It will consists of a series of questions from 2-4 examiners and there may or may not be direct involvement of the exam supervisor (who may be on site). There may also be direct involvement of an SEC subject matter expert on valuation modeling and structured credit. Occasionally but not necessarily a member of Enforcement is included – and regardless this is not reason to infer anything or panic.

The SEC’s cast of characters and the questions they pose are intended to help examiners understand the advisor’s personnel, their roles and activities.

Examiners likely will ask about:

  • Each person’s experience and qualifications;
  • The role and responsibilities of each person with respect to firm and other roles and responsibilities for affiliates or otherwise;
  • Areas of heightened attention – what risks cause the most concern;
  • Reporting lines, supervisory engagement and lines of communication; and
  • The overall control environment.

The goal of the onsite visit is to:

  • Better understand the advisor, its activities and clients;
  • Gain an overall understanding of the organization, work flow and control environment;
  • Assess the “tone from the top”;
  • Detect lack of cohesion or tension among managers and supervisors;
  • Make other intangible assessments that cannot be made solely on the basis of reviewing documents;
  • Compare interview responses to disclosures; and
  • Look for discrepancies that could signal violations.

Some firms prepare a powerpoint presentation to introduce the firm and its operations to the SEC. If time permits creating this presentation, this can be effective and constructive.

Tips for an Effective Engagement with the SEC

    • Assume every question has an agenda behind it. Nothing is random. No inquiry is immaterial.
    • Give succinct, direct and complete answers, but don’t volunteer information that was not asked for.
    • Ask for clarification if you don’t understand the question.
    • If asked the same question as already answered, give the same answer. Your prior question may not have been wrong or incomplete but the staff might be testing to determine whether they can elicit additional information or conflicting information with the second answer. Or they may have simply forgot that the question was already asked. In any case, you can’t go wrong if you stick with the same answer as long as it is accurate.
    • Don’t speculate or ramble. If you don’t know the answer, you should say so and provide the correct information later, as soon as possible. The worst thing you can do is say, “I’m not sure, but I think … “
    • Don’t treat the interview like a deposition – it is not intended to be adversarial.
    • observe a professional tone and take the exam process seriously in all written and oral interactions with the SEC
    • gain an understanding of who is in charge on the examiner team and direct interactions to that person.
    • Be prepared for later follow-up interviews and one-off questions.

The Role of the CCO in Interviews

The CCO should be present during the duration of all interviews. Some firms may want to bring in outside counsel during interviews. The SEC is accustomed to this and it should not send an untoward signal.

The CCO should take very detailed notes during the interview noting the types of questions asked and the firm’s response. It is acceptable to prepare the following interviewee with the same types of questions asked in prior interviews.

The CCO’s role is to interpret and clarify questions and explain how relevant information can be obtained. The CCO should sit with the interviewee.

The interviewee should not look for approval from the CCO to answer questions but may ask the CCO for clarification or how requested information can be obtained and/or provided.

Other Tips

Remind everyone – your firm’s people and anyone you share office space with – that they should be polite and friendly but NOT intimate. Do not engage the examiners in conversation. Or make jokes. Or let them roam your office without a member of your firm accompanying them. And no one should be discussing any firm business however benign in their presence or earshot for the duration of their visit. Firm personnel should be especially aware of conversations in common areas such as rest rooms and elevators.

Use the interview as an opportunity to proactively engage the examiners to help them better understand your business.

Project confidence, a sense of control and commitment to compliance.

The examination process is very time consuming and requires an inordinate amount of patience. Even though you have a day job or jobs, you must find the time to check in with the examiners at least once a day. Inquire if they have everything they need or whether you can respond to any questions. This establishes a good rapport and can also give you some additional insight into where the exam might be headed and when the exam might be winding down.

Determine whether the firm has any obligation (side letter or contractual) to inform investors of examination presence.

Jane Shahmanesh
jane@adherencellc.com
917-885-2596
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Saleemah Ahamed
saleemah@adherencellc.com
917-476-8632
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Peter Galloway
pete@adherencellc.com
917-399-9179
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Adherence Compliance Group +1-917-885-2596
220 W. 93rd Street, #8C New York NY 10025