CEFEX advisory firms voluntarily undertake annual audits by independent fiduciary experts. This verifies their adherence to the fiduciary standard and is supplemental to the oversight performed by most financial regulators, who require advisors to meet a minimum compliance standard.
The objective is simple: to protect investors.
In the U.S. the Securities & Exchange Commission (SEC) has performed surprise examinations of advisors for decades. Today, the SEC examines advisors on an approximate 13-14 year inspection cycle, which is clearly too long. CEFEX and fi360 have formally suggested that the SEC’s Office of Compliance Inspections and Examinations (OCIE) consider independent fiduciary assessments as a means of ‘white-listing’ investment advisory firms. In OCIE’s determination of which firms to examine, we propose that CEFEX-certified firms represent a lower risk and hence should be placed at a lower priority for OCIE audit. See our letter here.
The CEFEX audit includes a review of the security procedures used by the advisor including procedures for handling Personally Identifiable Information (PII).
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The CEFEX audit includes a background check on the top fiduciary at the firm.
Third-party audits provide an invaluable component to the safety of the investment industry. CEFEX audits provide dozens of checks and balances to the investment program with no direct cost to investors.
These audits are voluntary tools of the advisor and are not meant to replace regulatory examinations. As a voluntary activity with no legal status, the audits depend on openness and disclosure to accomplish their full function. They are not meant to uncover deceit or fraud. They are best described as a professional service; a consultation activity where the advisor can take advantage of the recommendations in the form of Opportunities for Improvement. Third party audits provide a new set of eyes to view the firm, forcing a level of formality which ensures new insights. This is important when the familiarity of internal compliance activities can become routine.