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.”
Category Archives: Written Policies and Procedures
Investment advisers must protect records that contain certain clients’ non-public, personal information. In efforts to safeguard client records and information, investment advisers should have in place a written information security plan. The main purpose of developing and implementing a strong written information security plan is to make sure that investment advisers have written policies and procedures in place to protect clients’ personal information. Investment advisers’ information security written policies and procedures must be reasonably designed to ensure the security and confidentiality of client records and information and to protect such records and information against any anticipated threats, hazards or unauthorized access or use.
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.
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.
SEC Finalizes Performance Fee Rules
March 27, 2012
The U.S. Securities and Exchange Commission (“SEC”) recently finalized revisions to Rule 205-3 under the Investment Advisers Act of 1940, raising the net worth requirements for individuals who are charged performance fees. As we discussed earlier, the SEC increased the threshold requirements for “qualified clients” to account for inflation.
Broker Dealers and Investment Advisers Need to Have Policies and Procedures in Place for Social Media Use
August 26, 2011
A recent FINRA Action highlighted the need for broker dealers and investment advisers to implement policies and procedures for social media use. FINRA brought this action because the registered representative had created websites related to her firm without obtaining firm approval, on several occasions she falsely stated online that she was not affiliated with any broker dealer, and she was using her Twitter account to give stock recommendations without making the necessary disclosures. As a result of this conduct, FINRA fined her $10,000 and suspended her from associating with a broker dealer for one year.
