Most of you are aware that the SEC is coming out with new compliance guidelines and its long-delayed new Form ADV Part 2. As part of their effort to get a better handle on how different advisors conduct their business operations, in light of the Bernie Madoff and other scandals, they’re planning to add a new questionnaire that every RIA will be required to fill out, which will become part of your disclosure documentation.
Bob Veres, editor of Inside Information tried to envision what, exactly, that questionnaire would be asking advisors in order to uncover whether they are or are not Ponzi schemers. Maybe it would take the form of a cleverly-worded multiple choice test like this one, which might give the SEC a clearer picture of how seriously you regard your fiduciary obligations. (If you are a financial advisor, take the test and see how you score.)
When a client acts on my investment recommendations, the client’s money is forwarded to:
A) My institutional custodian
B) My brokerage firm’s latest proprietary product (which we’re actively shorting)
C) An annuity/life insurance carrier that recognizes the importance of commissions
D) A numbered account at a private bank in Uruguay
When I attended my most recent mandatory ethics class, I:
A) Took notes
B) Fell asleep
C) Squirmed in my seat
D) Texted my attorney
E) Stole the instructor’s wallet
I believe a sound investment philosophy should include:
A) Diversification
B) Top-down evaluation
C) Above-average commission compensation
D) Confiscation
When I send out my quarterly performance statements, I:
A) Include appropriate benchmarking data
B) Apologize for the damage
C) Pray that my clients won’t open them
D) Hope to win an award for creativity
Since I began offering my investment management services, my personal net worth has:
A) Risen as my business has grown
B) Increased dramatically since I found out about 20-year surrender charges
C) Fluctuated depending on the vigilance of my compliance department
D) Precisely equaled my assets under management
I figure this questionnaire will be as effective as anything the SEC will come up with, so why not give it a shot!
