Determining ongoing compliance requirements may seem overwhelming to many registered investment advisors. Complying with the rules and regulations under the Investment Advisers Act of 1940 (“Investment Advisers Act”) and similar state investment advisor regulations must be a central part of an investment advisor’s fiduciary duties. Investment advisors have a variety of duties to perform throughout the year in order to comply with the requirements of the Investment Advisers Act and similar rules of state securities regulators. Having a well-organized process can help streamline an investment advisor’s ongoing compliance requirements. To help manage the ongoing compliance process, registered investment advisors should consider developing a compliance calendar that can serve as an effective and proactive tool to assist the investment advisor with meeting its ongoing compliance requirements. Developing a compliance calendar can help strengthen an investment advisor’s written compliance policies and procedures that must be developed pursuant to Rule 206(4)-7 of the Investment Advisers Act and similar state rules to detect, prevent, and correct possible regulatory violations that can occur throughout the year.
Category Archives: Compliance Program
Conducting a Risk Assessment of an Investment Adviser
October 23, 2012
Under Rule 206(4)-7 of the Investment Advisers Act of 1940 (“Investment Advisers Act”), investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) 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 Investment Advisers Act. Well-designed policies and procedures should also be able to detect violations that have occurred and to promptly correct any violations that have occurred. Most state securities regulators have adopted similar rules requiring investment advisers to develop and implement written compliance policies and procedures. As an investment adviser, the first step in developing written policies and procedures should be to identify the areas of risk related to the investment adviser’s practice and business model. This process of identifying risks that make the investment adviser vulnerable to violations of the Investment Advisers Act is often referred to as a “Risk Assessment,” a “Gap Analysis,” or the compilation of a “Risk Inventory.”
The State of Washington’s Department of Financial Institutions recently sent out a memo to investment advisors registered in Washington that described potential updates, amendments, and additions to Washington’s investment advisor rules and regulations. Amendments to the custody requirements and an exemption for private fund advisors are the major provisions included in the memo, but the Washington Department of Financial Institutions also proposed changes for financial reporting, books and records, unethical practices, proxy voting, advisory contracts, and compliance procedures. You can access a copy of the draft amendments here.
RIA Compliance Consultants recently hosted a webinar, Establishing Information Security Programs for Registered Investment Advisors. During this webinar, our compliance consultant discussed the regulatory requirements for establishing an information security program and then went into a detailed discussion on how a registered investment advisor can establish an information security program that effectively protects its client data.
Does Your Investment Adviser Have a Written Privacy Policy?
September 05, 2012
As we have previously discussed, Rule 30 of Regulation S-P (“Regulation S-P”) issued by the U.S. Securities and Exchange Commission (“SEC”) requires SEC registered investment advisers to adopt written policies and procedures designed to ensure the security and confidentiality of client information. For state registered investment advisers, the Federal Trade Commission (“FTC”) has enacted Safeguard Rules which are similar to Regulation S-P and apply to state registered investment advisers. Additionally some states have enacted their own information security requirements that apply to SEC and state registered investment advisers.
Investment Advisers must have Procedures in Place to Safeguard Client Records and Information
August 22, 2012
Pursuant to Rule 30 of Regulation S-P (“Regulation S-P”), investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) “…must adopt policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information. These policies and procedures must be reasonably designed to:
Investment Advisers Should Consider Form U4 Obligations when Developing Written Supervisory Procedures
July 20, 2012
When a registered investment adviser is developing its ongoing compliance program, the investment adviser should develop written policies and procedures regarding the filing, retention and administration of an investment adviser representative’s Form U4.
Due diligence needs to be an important component for any investment adviser compliance program. As we discussed earlier, due diligence should not be limited to recommending investments, but must also be employed when recommending or using third party service providers. In our opinion, one of the most important, if not the most important, outside service provider decisions made by investment advisers are the selection of a recommended broker/dealer. In fact, many investment advisers require clients to use a particular broker/dealer. However, far too many investment advisers fail to perform adequate due diligence on this important selection. We hear from many investment advisers that they fully understand broker/dealer best execution reviews are expected, but are not completed because of reasons such as (1) the broker/dealer they work with is large and reputable, (2) the investment adviser only selects mutual funds so best execution doesn’t matter or (3) the differences between broker/dealers are so slight that due diligence is unnecessary. Because of these reasons and others such as time and cost constraints, broker/dealer best execution reviews and due diligence is a matter often neglected by investment advisers.
The Importance of Conducting Service Provider Due Diligence Review for Investment Advisers
June 28, 2012
Many investment advisers choose to engage third-party service providers to perform a number of important services for their firm and their advisory clients. There are third-party service providers offering a number of important services to investment advisers. Some of the services include client and portfolio management software systems, marketing of advisory services, referring clients to the investment adviser, calculating investment valuations, proxy voting, financial reporting, and maintaining required books and records. However, when a service provider is utilized, the investment adviser still retains its fiduciary responsibilities for the delegated services. As a result, investment advisers should develop strong compliance policies and procedures for performing due diligence when selecting and retaining third-party service providers.
Investment Advisers Should Make Sure They Can Back-Up Statements and Claims Made in Advertising
June 13, 2012
Investment advisers must be cautious when it comes to the statements and claims used in advertising and marketing materials and this does not just pertain to performance claims. Investment advisers must avoid all statements or claims that are unsubstantiated or that cannot be proven with material facts. Investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) must ensure that all advertising and marketing material complies with Rule 206(4)-1 under the Investment Advisers Act of 1940 (“Investment Advisers Act”). Many state investment adviser regulations follow similar regulatory guidelines as those outlined in Rule 206(4)-1. Under SEC Rule 206(4)-1(a)(5), investment advisers are expressly prohibited from publishing, circulating and distributing any advertisement, “which contains any untrue statement of a material fact, or which is otherwise false or misleading
