Coordinated Examinations Result in the Release of Recommended Best Practices for Investment Advisers

October 19, 2011

As the approaching deadline nears for mid-size investment advisers (those with assets under management between $25 and $99 million) to switch from U.S. Securities and Exchange Commission (“SEC”) registration to state registration, many state securities regulators are making preparations for increased regulatory oversight. As these efforts are taking place, the North American Securities Administrators Associations (“NASAA”) recently released “an updated series of recommended best practices that investment advisers should consider to minimize the risk of regulatory violations.” These best practices were developed after a series of coordinated examinations were conducted between January 1, 2011 and June 30, 2011. Examinations were conducted by 45 state and provincial securities examiners of 825 investment advisers. According to Jack Herstein, NASAA President and Assistant Director of the Nebraska Banking and Finance Department, Bureau of Securities, “Our goal in identifying deficiencies and recommending best practices is to help investment advisers strengthen their internal compliance programs and improve the services they provide to clients.”

On October 3, 2011, the “2011 Coordinated IA Examination Report” was released revealing 3,543 total deficiencies in 13 categories. Registration, books and records, unethical business practices, supervision and advertising had the greatest number of deficiencies.

The findings of the coordinated examination prompted NASAA to recommend the following best practices for investment advisers as a guide to assist advisers in developing compliance practices and procedures.

  • Review and revise Form ADV and disclosure brochure annually to reflect current and accurate information;
  • Review and update all contracts;
  • Prepare and maintain all required records, including financial records.  Back-up electronic data and protect records.  Document checks forwarded;
  • Prepare and maintain client profiles;
  • Prepare a written compliance and supervisory procedures manual relevant to the type of business to include business continuity plan;
  • Prepare and distribute a privacy policy initially and annually;
  • Keep accurate financials.  File timely with the jurisdiction.  Maintain surety bond if required;
  • Calculate and document fees correctly in accordance with contracts and ADV;
  • Review all advertisements, including website and performance advertising, for accuracy;
  • Implement appropriate custody safeguards, if applicable;
  • Review solicitor agreements, disclosure, and delivery procedures.

For more information on switching from SEC to state registration, click here to register for RIA Compliance Consultants’ free webinar, Understanding and Preparing for the ‘Switch’ for Mid-Sized Advisors,” hosted October 20, 2011 at 12:00 p.m. central.

RIA Compliance Consultants can assist you with the switch from SEC to state registration or with updating your firm’s policies and procedure to address areas referenced in NASAA’s best practice list.  To discuss our services and to see how we can help you with the registration transition, click here to speak to one of our Senior Compliance Consultants.

Posted by Bryan Hill
Labels: Compliance Violations, NASAA, Switch from SEC to State