July 21, 2009
Your proposal for surprise annual audits for RIAs offers more expenses for no protection for investors who work with currently audited firms. Currently our RIA coordinates with an affiliated company for quarterly billing. In a defined process our affiliated person has a copy of the contract and a copy of the signed billing agreement. We send down our request to the billing department to have funds removed per the contract agreement along with our prescribed methodology in the fee charged.
Our affiliated person then error checks the bill using a prescribed process to recompute our work. Once that cross check has been completed, they remark on any corrective action and the fee is deducted from the clients account.
I would suggest that if the RIA holds clients funds with multiple brokerage accounts and is using pooled accounting, then an audit might be required to insure that the firm had policies and procedures in place to insure proper billing.
However, if a certified process is in place that insures that two separate firms are reviewing clients accounts payable, I would think that would insure that the clients funds are being treated per the signed contract.
Remember this process is already costing both firms significantly in manpower cost. I can not see adding a duplicative cost does anything more for the client in terms of protection.