The Bernard Madoff scandal not only caused billions of dollars of losses to investors, but it also appears to have sparked a new zeal on the part of the regulators. Financial advisors need to realize that there's a new sheriff in town-or more accurately, dozens of new sheriffs. And they mean business. Think Dirty Harry meets The Terminator, with a dash of James Bond mixed in, and you'll get the picture. SEC Chairman Mary Schapiro recently emphasized this point: "It is precisely during times like these that we need the SEC as 'investor's advocate.' An SEC with the staff, the will, and the resources necessary to move with great urgency to bring transparency and accountability to all corners of the marketplace, vigorously prosecute those who have broken the law and cheated investors, and modernize our country's regulatory system to match the realities of today's global, interdependent markets."

With these changes on the horizon, with this new urgency, advisors are going to need to change their expectations about what regulators will demand and how the regulators will act.

RESPONSE TO REGULATORS

While it has always been important to respond to regulators accurately and on a timely basis, these issues are now more critical than ever. In the near future, regulators will be cracking the whip, partly because they've been accused of being asleep at the wheel. So when dealing with regulators, advisors should consider the following questions: Does the regulator understand my practice? If not, explain it. Do I understand what the regulators are asking for? If not, seek clarification. Can I respond on a timely basis? If not, it may make sense to produce what you can and explain your need for additional time to complete your response. Since responding, have I recalled something new or discovered new, relevant documents? If so, consider supplementing the response. Am I being truthful and candid in my responses? If not, you know what to do.

The chief of the SEC's exam program, Lori Richards, has urged firms and advisors to make sure that their compliance programs are working as they should. In a recent speech, she said: "While our oversight system needs strong and tough regulators, no regulator can be in the room when firm employees make decisions and choices that will impact investors. That's where having a 'culture of compliance' that emphasizes doing what's right is so critical. You can step up to reinforce and to strengthen your firm's culture of compliance now."

The consequences of the Madoff scandal will be far-reaching and likely will affect financial advisors in many ways. Exams may become more difficult and FAs will have to respond to seemingly unreasonable demands by regulators acting under pressure to move swiftly. Remember, it won't be wise to take on the sheriff. Instead, focus on making good sales and view regulatory oversight as a cost of doing business.

Clifford Kirsch, a securities regulatory partner in the NY office of the Sutherland law firm, was formerly with the SEC. Brian Rubin is a securities enforcement partner in Sutherland's Washington, D.C. office.