RIA Compliance Consultants is hosting a webinar during which we will provide an overview of the requirement for an investment adviser to develop written supervisory policies and procedures in accordance with Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Investment Advisers Act”). Under this rule U.S. Securities and Exchange Commission (“SEC”) registered investment advisers are required to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act and the rules that the SEC has adopted under the Act. Most state securities regulations have similar requirements. During this webinar, RIA Compliance Consultants will:
Category Archives: Compliance Program
Requirements for Investment Advisers Electronically Maintaining Required Books and Records
September 11, 2013
Under Rule 204-2, “Books and records to be maintained by investment advisers,” of the Investment Advisers Act of 1940 (“Investment Advisers Act”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) is required to make and keep true, accurate, and current certain books and records relating to its investment advisory business. Although most state securities regulators have adopted the same or similar books and records requirements, state registered investment advisers need to make sure that they are familiar and complying with the books and records requirements of the appropriate state securities regulator. Under Rule 204-2(g), SEC registered investment advisers are permitted to maintain all required records electronically, if the investment adviser establishes and maintains procedures: “(i) To maintain and preserve the records, so as to reasonably safeguard them from loss, alteration, or destruction, (ii) To limit access to the records to properly authorized personnel and the [SEC] (including its examiners and other representatives); and (iii) To reasonably ensure that any reproduction of a of non-electronic original record on electronic storage media is complete, true, and legible.” SEC registered investment advisers must also ensure that electronically maintained records are arranged and indexed in a manner that permits easy location, access, and retrieval and upon request by the SEC investment advisers must be able to promptly provide: “(A) A legible, true, and complete copy of the record in the medium and format in which it is stored; (B) A legible, true and complete printout of the record; and (C) Means to access, view, and print the records.” SEC registered investment advisers must also separately store, for the time required under Rule 204-2 for preservation of the original record, a duplicate copy of the record on any medium allowed under Rule 204-2.
Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Investment Advisers Act) requires registered investment advisers to have in place written supervisory policies and procedures. Although the rule does not specifically indicate the areas that must be addressed in an investment adviser’s written supervisory policies and procedures, the final rule release indicated some issues that should be addressed in all investment advisers’ written supervisory policies and procedures to the extent they are relevant to the investment adviser; one of these issues is business continuity plans. As a fiduciary, an investment adviser has a responsibility to take the appropriate steps to protect the clients’ interests from risks resulting from the investment adviser’s inability to provide advisory services due to a disruption in business, like a natural disaster; therefore, all investment advisers should have a business continuity and disaster recovery plan. The business continuity and disaster recovery plan should provide guidance regarding the steps and actions that should be taken in the event of an unanticipated interruption of normal business operations. When developing a plan specific to the advisory firm, each investment adviser is encouraged to consider all of the firm’s advisory services and functions, consider any possible significant business disruptions that may occur, and determine a plan of action for each of these potential disruptions.
In the final rule release for Rule 206(4)-7 of the Investment Advisers Act of 1940 (“Investment Advisers Act”), which requires investment advisers registered with the Securities and Exchange Commission (“SEC”) to adopt and implement written policies and procedures, the SEC indicated that when designing investment advisory policies and procedures each investment adviser “should first identify conflicts and other compliance factors creating risk exposure for the firm and its clients in light of the firm’s particular operations and then design policies and procedures that address those risks.” This process of an investment adviser identifying these risks is commonly referred to as a risk assessment. As RIA Compliance Consultants previously discussed, a risk assessment should serve as a mechanism for an investment adviser to identify its unique set of risks and evaluate what risks are present and how such risks affect the investment adviser and its business operations. A risk assessment should be a critical step used when developing strong written policies and procedures.
Over the past year, we have written several articles warning investment advisers to prepare for regulatory examinations as both the U.S. Securities and Exchange Commission (“SEC”) and state securities regulators have indicated that investment advisers should expect to see an increase in the number of exams being conducted. RIA Compliance Consultants is seeing the effects of more frequent investment adviser exams. Lately, we have experienced an increase in the number of calls from clients and prospective clients because they have recently been trough an SEC or state investment adviser exam or have been notified by an SEC or state securities regulator that their investment advisers will be audited in the near future. One of the most common inquiries we are receiving is regarding what we can do to assist with preparing or updating the investment adviser’s written policies and procedures. Too often, we are hearing that, although the investment adviser has been registered for some time, the investment adviser does not have customized written supervisory policies and procedures or has not properly maintained current and customized policies and procedures.
Investment Advisers Should Have Compliance Policies and Procedures for the Use of Social Media
June 12, 2013
The use of social media and networking websites is becoming an increasingly common communication and marketing tool. If an investment adviser permits the use of social media and networking websites by its supervised persons, the investment adviser must have in place strong compliance policies and procedures that clearly define acceptable use and address key areas such as supervision and record retention.
Routinely, the U.S. Securities and Exchange Commission (“SEC”) will conduct examinations of investment adviser firms. During the examination process the SEC will request certain information or documents that the SEC examiners will review as part of the examination process. As part of the examination process, investment adviser can anticipate that their firm’s investment advisory agreements will be reviewed. Investment advisers may encounter deficiencies or similar regulatory violations if the investment adviser’s advisory contracts do not comply with the applicable SEC or state regulations. Additionally, having in place a properly drafted investment advisory agreement or contract can help limit an investment adviser’s professional liability. To help your investment adviser further understand investment advisory client contracts, RIA Compliance Consultants is hosting a webinar, “Key Elements that Should be Included in an Investment Advisory Client Contract – Presented by Bryan Hill Law.” (RIA Compliance Consultant’s is not a law firm.) This webinar will cover topics pertaining to advisory client contracts, including, but not limited to:
An investment adviser is required to prepare and submit a completed Form ADV as part of the initial registration process. In addition to the review by the U.S. Securities and Exchange Commission (“SEC”) or state securities regulator(s) for purposes of determining whether to approve or deny an application for investment adviser registration, the Form ADV Part 2 is also used as the investment adviser’s disclosure document which is required to be provided to all investment advisory clients.
As Regulators Prepare to Conduct More Examinations, Registered Investment Advisers Should Make Sure They are Prepared
May 29, 2013
Registered investment advisers must make sure that they have strong compliance programs in place and they are prepared for regulatory examinations as regulators expect to increase the number of examinations being conducted. In recent testimony before the U.S. House of Representatives Committee on Financial Services, Chairman Mary Jo White of the U.S. Securities and Exchange Commission (“SEC”) discussed some of the recent activities of the SEC. The testimony addressed several key areas of SEC oversight and focus including the areas of SEC enforcement and the SEC’s inspection and examination program. During the testimony, Chairman White stated, “the [SEC] needs to further strengthen the enforcement and examination functions of the SEC. Strong enforcement of the securities laws is necessary for investor confidence and is essential to the integrity of our financial markets. Successful enforcement actions result in sanctions that deter and punish wrongdoing and protect investors, both now and in the future. Similarly, our National Examination Program is critical to improving compliance by regulated entities, preventing and detecting fraud, and monitoring market risks.”
Understanding the Provisions Required for Registered Investment Adviser Client Contracts
May 16, 2013
Under Section 205 of the Investment Advisers Act of 1940 (“Investment Advisers Act”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) shall not “enter into, extend, or renew any investment advisory contract, or in any way to perform any investment advisory contract entered into, extended, or renewed…” unless the investment advisory contract meets certain requirements specified under Section 205. Section 205(d) of the Investment Advisers Act defines an investment advisory contract as “any contract or agreement whereby a person agrees to act as an investment adviser to or to manage an investment or trading account of another person….”
