"Do not misconstrue the message of this
Giachetti believes that regulators will go after new registrants and long-registered firms that haven't been audited in the past decade.
"If you haven't been examined in a long time, they're coming this year. I don't know how they're going to do it, but they're coming," he said. "For those of you who have not been examined — new registrants — they're coming."
Giachetti outlined several red flags in an exam that could lead a more aggressive
"It means you're responsible. You cannot blame your consultant. You cannot say you got bad advice," he said. "The
He also stressed the importance of playing it straight when reporting or citing assets under management, cautioning advisors against the trap of inflating the value of their portfolio with the aid of nebulous (and what Giachetti called bogus) terms like "assets under advisement."
He has similar advice for advisors who are tempted to boast about the composite performance of the assets they manage.
"The vast majority of firms that publish [composite performance data] have no business doing it," he said. "Be smart about composite performance. It will put you on the highest risk scale."
Too often, figures purporting to describe composite performance are based on dubious assumptions or incomplete data, just the sort of deficiency examiners look for when probing the basis of a performance claim.
"Be careful about hypotheticals. They loathe hypotheticals," Giachetti said. "If you ain't got it, you can't publish it. And if you are, you've got some explaining to do."
Giachetti warned about other pitfalls as well, including questions about when advisors should claim custody of their clients' assets, billing issues and the strong due diligence advisors need to conduct when recommending private funds.
"If you're recommending them, you better have a hell of a due diligence file," he said.
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