CLIENT FILE REVIEW

NASAA 2010 INVESTMENT ADVISER

TRAINING

Number of files to be reviewed?

The number of files reviewed at an examination is an issue. How many is enough? More importantly is the number of clients reviewed. Clients may have multiple accounts and it is important to review the client as a whole to have a better understanding of suitability, fees, performance, etc…

How are files selected?

Type of business AUM, Financial Plans, Consulting

Trade Blotter –recent activity Type of investments

Mutual Funds, Variable Annuities, Stocks, Options, Alternative Investments, etc…

Type of account Discretion/Non-discretion, Trust,

Margin, IRA, Education, Pension, etc…

How are files selected?

Complaints Size of account – largest/smallest Accounts of IARs and relatives New accounts/Established accounts Terminated accounts Random

Managed AccountsClient File Review Client Contract Custodial Application Legal Documents

Trust Instrument, POA, Will, etc… Suitability

Review investment holdings (custodial statements) as compared to investment objectives, risk tolerance, and other suitability information & insurance products

Age of suitability information Investment holdings consistent with legal

documents, if applicable.

Managed AccountsClient File Review

Trading Activity Look for signs of excessive trading, front running,

bunched trades, commissions, mutual fund breakpoints/type of shares

Trade Blotter Verify that trades on the custodial statements

have been properly recorded on the IA’s trade blotter

Fee Calculation Review fee invoices - verify fee calculations and

make sure fees paid agree with contract/Form ADV - make sure IA has proper authority to deduct fees from custodial account

Managed AccountsClient File Review

Performance Calculations Verify individual performance calculations

Correspondence Review correspondence for false or misleading

information, and questionable commentary Reports/Statements generated by IA

Review and compare reports/statements generated by IA to those generated by custodian – discuss differences

Money Manager AccountsClient File Review

Contract Money Manager Contract Solicitor Disclosure Document

Verify the client received both Form ADVs, separate solicitor disclosure document

Fee Calculation Review fee invoices - verify fee calculations and make

sure fees paid agree with contract/Form ADV - make sure IA has proper authority to deduct fees from custodial account

Correspondence Review correspondence for false or misleading

information, and questionable commentary

Financial PlansClient File Review Contract Financial Plan Suitability

Review Financial Plan to ensure contracted services are met – Example: Estate Planning, Retirement Planning

Review Financial Plan for reasonableness of recommendations in relation to suitability information

Fee Calculation Review fee invoice, verify fee calculations, and

make sure fees paid agree with contract/Form ADV

Financial PlansClient File Review

Correspondence Review correspondence for false or misleading

information, and questionable commentary Plan Delivery

Recommend a plan delivery receipt be signed by client to document receipt and date of delivery

If portion of the fee is collected in advance, delivery receipt provides evidence plan was delivered within six months – custody issue if more than $500 is collected six or more months in advance

Hourly ConsultingClient File Review

Contract Fee Invoice Documentation of services provided

Review consulting documents to ensure contracted services are met

Verify fee calculations and make sure fees paid agree with contract/Form ADV