END OF YEAR COMPLIANCE – Part 1

December 21, 2005

Recently, we have posted several blogs about the IARD renewal season. In addition to paying renewal fees each year, there are a number of other annual requirements that must be completed by investment advisor firms. The end of the calendar year is a good time to discuss some of those different compliance requirements. This entry is the first in a series of blogs that we will post discussing some of the annual requirements.

It’s critical that the completion of these annual requirements for investment advisors is well documented. It is very hard to prove to a regulator that an advisor firm has completed a requirement when there is no documentation. For example, any time you submit a form to a regulator be sure to keep a copy of the form and the documentation used to prepare the form. Likewise, it is important to document anything that is delivered to clients.

Form ADV Offer – All advisor firms are required to offer a copy of their Form ADV or disclosure brochure to all clients on an annual basis. The annual offer does not need to be at the end of year; however, it should be made at approximately the same time each year for consistency. Again, documentation of this requirement is essential. Some advisor firms elect to keep a copy of each client’s annual offer in the client’s file. Other advisor firms elect to keep a sample, dated copy of the annual offer letter along with a list of all clients the offer was sent to and a list of all clients that requested a copy of Form ADV or disclosure brochure. Keep in mind if a client requests a copy of the Form ADV or disclosure brochure, the SEC requires that delivery be made within seven days. Most states also require delivery to be made within a certain time frame.

Customer Privacy Policy Statement – A similar, albeit newer, requirement is the annual delivery of the firm’s customer privacy policy statement. In addition to providing a copy of the firm’s privacy statement to all clients upon entering into a contract, regulators also require advisor firms to provide a complete copy of the privacy statement to clients on an annual basis. Many firms have begun to incorporate the customer privacy policy statement with the annual Form ADV offer. Again, the key here is to document the delivery by keeping a log of each client that receives the statement, when the statement was sent, and a copy of the statement.

IARD Administrative Functions – The end of the year is a great time to make sure your advisor firm’s IARD administrator and user accounts are up-to-date. Maybe an account administrator left your firm this year or maybe someone listed as an IARD user no longer needs to have access to the account. This is a good time to make sure only those within the firm that need access to the IARD system, have access. If a former employee still has an account, make sure the account has been disabled and terminated. Likewise, make sure that all current administrators and users know their user names and have functioning passwords.

The items listed here are definitely not all inclusive of the requirements your firm may need to complete. Each advisor firm should be aware of its regulatory requirements based on the firm’s general business procedures and regulatory authority. This entry is the first in a series of annual requirement blogs that we will post so stay tuned to the RIA Compliance Consultants website. If your firm has questions or concerns about one of the items listed in this entry, please give us a call.

Posted by Bryan Hill
Labels: Form ADV, IARD