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.
Category Archives: Compliance Training
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.
Best Practices and Guidance for Social Media and Email Communication use for Investment Advisers
June 19, 2013
Social media presents a challenge for investment advisers in their effort to comply with the Investment Advisers Act of 1940 (“Investment Advisers Act”) and other regulations. The Risk Alert regarding Investment Adviser Use of Social Media issued by the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations states that investment advisers using social media should adopt and review their policies and procedures periodically; “Firms should create usage guidelines on appropriate and inappropriate use of social media and should consider adopting policies and procedures to address conducting firm business on personal social media sites.” Additionally, investment advisers have recordkeeping requirements that require certain communications made through social media sites to be retained. According to the Risk Alert “registered investment advisers that communicate through social media must retain records of those communications if they contain information that satisfies the recordkeeping obligations under the [Investment] Advisers Act.”
Although the Investment Advisers Act of 1940 (“Investment Advisers Act”) does not explicitly require investment advisory contracts to be written, Section 205 of the Investment Advisers Act requires all advisory contracts to include certain provisions and prohibits investment advisory contracts from including other provisions. Most state securities regulations require written agreements between the investment adviser and each client. Regardless of whether a written contract is required by the investment adviser’s primary regulator, the use of a written agreement with each client is generally considered best practice and in the best interest of the investment adviser and the investment advisory client. A properly drafted investment advisory agreement can help limit an investment adviser’s professional liability. During an investment adviser examination, the U.S. Securities and Exchange Commission (“SEC”) or state securities regulator will likely review an investment adviser’s written client contracts and the following are some of the common deficiencies that an investment adviser may encounter:
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.”
A Registered Investment Adviser Needs to Ensure that Power of Attorney Over Client’s Account is Limited
May 08, 2013
In order to trade or otherwise access a client’s account held by a custodian, a registered investment adviser must be granted written authorization by the client. Such authorization is generally granted in the form of a power of attorney. Although a power of attorney over a client’s account is necessary for a registered investment adviser to manage the client’s account, it is important for an investment adviser to ensure that the power of attorney is limited to only the functions actually intended by the client and the investment adviser.
Investment advisers must develop a strong culture of compliance within the investment adviser firm in order to help prevent and detect regulatory violations. In order to do so, investment advisers must figure out a way to stay current on regulatory changes and current areas of focus and should provide ongoing training to the investment adviser’s supervised persons. RIA Compliance Consultants provides a wide variety of investment adviser compliance webinars to help investment advisers understand ongoing compliance requirements, key areas of regulatory focus, and regulatory changes. Investment advisers can now purchase a yearly subscription webinar package. Investment advisers purchasing the yearly subscription webinar package will be provided unlimited access to any live and previously recorded webinars hosted by RIA Compliance Consultants during the term of the engagement. We have over 30 previously recorded webinars in our library and typically host at least 10 live webinars per year. Your investment adviser can use the webinars presented by RIA Compliance Consultants to assist your investment adviser with new staff training on basic investment adviser compliance, to learn best practices tips for chief compliance officers and to help the investment adviser stay current on recent regulatory developments. By purchasing this annual subscription now, your investment adviser can immediately reduce the average cost of attending multiple investment advisory compliance webinars presented by RIA Compliance Consultants and make sure that you and your supervised person have access to outstanding investment adviser compliance training presented by our veteran compliance consultants. To view our library of previously recorded webinars, please click here and to view our current schedule for live webinars, please click here. We update our live webinars schedule frequently, so please continue to check back for an updated schedule. To learn more about our compliance webinars package program or to purchase this package, please click here.
