SEC Publishes July 2008 ComplianceAlert
Today, the U.S. Securities and Exchange Commission (SEC) released its July 2008 ComplianceAlert letter which identifies and describes common deficiencies and weaknesses that SEC examiners have found during compliance examinations of SEC registered investment advisers/mutual funds, broker-dealers, and transfer agents. The release, which is considered official comment from the SEC’s Office of Compliance Inspections and Examinations and other select SEC department staff, provides valuable guidance for registered investment advisors trying to navigate the regulatory maze. In the release, the SEC provides guidance on four major areas: (1) personal trading by advisory staff; (2) proxy voting and funds’ use of proxy voting services; (3) valuation and liquidity issues in high yield municipal bond funds; and (4) soft dollar practices of investment advisors.
The release was prepared based on information gathered from certain risk-targeted examination reviews. It was written as a tool for Chief Compliance Officers and provides valuable tips and techniques for developing customized compliance programs. While some of the guidance provided by the SEC may have little practical application depending on the specific arrangements of your registered investment advisor, the release is still an excellent resource and should be read by every Chief Compliance Officer. You can read the entire release by clicking here.
Since passage of Rule 206(4)-7, which requires all SEC registered investment advisors to: (1) develop written compliance programs; (2) assess those programs on at least an annual basis; and (3) designate a Chief Compliance Officer, the SEC has made a more concerted effort to interact and be proactive with Chief Compliance Officers through tools such as ComplianceAlerts and the CCOutreach program. However, complying with SEC rules and regulations is a daunting challenge. RIA Compliance Consultants, Inc. can help your registered investment advisor navigate the regulatory maze. Visit our website or contact us to learn more about our suite of compliance consulting services.
The release was prepared based on information gathered from certain risk-targeted examination reviews. It was written as a tool for Chief Compliance Officers and provides valuable tips and techniques for developing customized compliance programs. While some of the guidance provided by the SEC may have little practical application depending on the specific arrangements of your registered investment advisor, the release is still an excellent resource and should be read by every Chief Compliance Officer. You can read the entire release by clicking here.
Since passage of Rule 206(4)-7, which requires all SEC registered investment advisors to: (1) develop written compliance programs; (2) assess those programs on at least an annual basis; and (3) designate a Chief Compliance Officer, the SEC has made a more concerted effort to interact and be proactive with Chief Compliance Officers through tools such as ComplianceAlerts and the CCOutreach program. However, complying with SEC rules and regulations is a daunting challenge. RIA Compliance Consultants, Inc. can help your registered investment advisor navigate the regulatory maze. Visit our website or contact us to learn more about our suite of compliance consulting services.
Labels: Compliance Program, Proxy Voting, Regulatory Inspections, SEC, Soft Dollars
posted by bhill at 2:38 PM
First Quarter Personal Securities Transaction Reports
With the end of first quarter 2008, RIA Compliance Consultants would like to remind SEC registered investment advisors of their requirement to collect or prepare updated personal securities transaction reports from all access persons. The information on the reports must reflect transactions that took place during first quarter of 2008 and must officially be reported to the firm no later than 30 days after the end of the quarter. Therefore, all reports must have been collected by April 30. As part of the SEC Code of Ethics rule, all SEC registered investment advisor firms are required to review the activity of their access persons' securities holdings at the end of every calendar quarter. The quarterly reports and documented review/approval of each report must be retained as part of a registered investment advisor firm's official books and records.
It is important for investment advisor firms to not only collect these reports, but to also establish a system of reviewing and documenting the reviews of all reports. In particular, the review of personal securities transactions should attempt to detect instances or patterns when the interests of the firm or its access persons are placed ahead of the interests of clients. Depending on your firm's specific procedures, reviews may focus on restricted lists, black-out periods, and other conditions placed on access persons trading activities.
If your firm has questions or concerns about your firm's requirements to monitor and review personal securities transactions, please give us a call to find out how we can develop a customized suite of compliance services designed specifically for your firm.
It is important for investment advisor firms to not only collect these reports, but to also establish a system of reviewing and documenting the reviews of all reports. In particular, the review of personal securities transactions should attempt to detect instances or patterns when the interests of the firm or its access persons are placed ahead of the interests of clients. Depending on your firm's specific procedures, reviews may focus on restricted lists, black-out periods, and other conditions placed on access persons trading activities.
If your firm has questions or concerns about your firm's requirements to monitor and review personal securities transactions, please give us a call to find out how we can develop a customized suite of compliance services designed specifically for your firm.
Labels: Compliance Program, Enforcement, PST
posted by bhill at 9:58 AM
Lori Richards Provides Insight to SEC Exam Focus
On March 20, Lori Richards, Director - SEC's Office of Compliance Inspections and Examinations, delivered a speech explaining the SEC's current registered investment advisor examination priorities. The speech highlights the "top 10" areas of focus during routine examinations. While not an official statement from the SEC, Ms. Richards' speech provides excellent insight into the current mindset of the SEC Office of Compliance Inspections and Examinations.
It is important to note that the focus of an SEC examination will largely depend on a registered investment advisor firm's actual business operations, services, arrangements, policies and procedures. However, all registered investment advisor firms can benefit from reading Ms. Richards' speech in its entirety so that the areas of emphasis are understood and your firm can be prepared. Registered investment advisor firms should make sure the following areas are covered in their written policies and procedures and analyzed during the firm's annual assessment. The following is the top 10 according to Ms. Richards with highlights provided by RIA Compliance Consultants. To read Ms. Richards' speech in its entirety, click here.
1. Controls Over Valuation. How does the firm value securities? Particularly illiquid, private and other hard-to-price securities.
2. Controls Over Non-Public Information/Personal Trading/Code of Ethics. The SEC is focusing on personal securities transactions during its reviews. Policies to protect client information is also a priority of the SEC.
3. Dealing with Senior Investors. This continues to be a hot topic for both the SEC and state regulators.
4. Compliance and Supervision. Does the program effectively manage and control various compliance risks? Are all advisor representatives and branch offices properly supervised?
5. Portfolio Management. Are management services consistent with client mandates? Are they consistent with client objectives and restrictions?
6. Brokerage Arrangements and Best Execution. Is the registered investment advisor seeking best execution? Does the firm document its best execution reviews? Are arrangements properly and fully disclosed to clients, including services received from broker/dealers?
7. Allocations of Trades. Are all clients treated fairly and investment opportunities allocating consistently?
8. Performance Advertising, Marketing, and Fund Distribution Activities. Are there proper controls to review and approve marketing materials? Can performance numbers be justified and supported? This is a historically hot topic during SEC examinations and an area that consistently results in deficiencies.
9. Safety of Clients' and Funds' Assets. This area includes a focus on the safeguarding of client assets from theft.
10. Information Processing and Protection (books and records, disclosures, and filings). Does the firm have all required books and records? Are those records properly maintained and protected in the event of a disaster? Are all potential conflicts of interest disclosed to clients? Has the firm complied with applicable regulatory filings?
Included in the many services offered by RIA Compliance Consultants, Inc. are mock regulatory examinations and annual compliance program assessments. These services are provided with a goal of assisting registered investment advisor firms comply with applicable rules and regulations and prepare for SEC examinations. If you are interested in these services, please give us a call today.
It is important to note that the focus of an SEC examination will largely depend on a registered investment advisor firm's actual business operations, services, arrangements, policies and procedures. However, all registered investment advisor firms can benefit from reading Ms. Richards' speech in its entirety so that the areas of emphasis are understood and your firm can be prepared. Registered investment advisor firms should make sure the following areas are covered in their written policies and procedures and analyzed during the firm's annual assessment. The following is the top 10 according to Ms. Richards with highlights provided by RIA Compliance Consultants. To read Ms. Richards' speech in its entirety, click here.
1. Controls Over Valuation. How does the firm value securities? Particularly illiquid, private and other hard-to-price securities.
2. Controls Over Non-Public Information/Personal Trading/Code of Ethics. The SEC is focusing on personal securities transactions during its reviews. Policies to protect client information is also a priority of the SEC.
3. Dealing with Senior Investors. This continues to be a hot topic for both the SEC and state regulators.
4. Compliance and Supervision. Does the program effectively manage and control various compliance risks? Are all advisor representatives and branch offices properly supervised?
5. Portfolio Management. Are management services consistent with client mandates? Are they consistent with client objectives and restrictions?
6. Brokerage Arrangements and Best Execution. Is the registered investment advisor seeking best execution? Does the firm document its best execution reviews? Are arrangements properly and fully disclosed to clients, including services received from broker/dealers?
7. Allocations of Trades. Are all clients treated fairly and investment opportunities allocating consistently?
8. Performance Advertising, Marketing, and Fund Distribution Activities. Are there proper controls to review and approve marketing materials? Can performance numbers be justified and supported? This is a historically hot topic during SEC examinations and an area that consistently results in deficiencies.
9. Safety of Clients' and Funds' Assets. This area includes a focus on the safeguarding of client assets from theft.
10. Information Processing and Protection (books and records, disclosures, and filings). Does the firm have all required books and records? Are those records properly maintained and protected in the event of a disaster? Are all potential conflicts of interest disclosed to clients? Has the firm complied with applicable regulatory filings?
Included in the many services offered by RIA Compliance Consultants, Inc. are mock regulatory examinations and annual compliance program assessments. These services are provided with a goal of assisting registered investment advisor firms comply with applicable rules and regulations and prepare for SEC examinations. If you are interested in these services, please give us a call today.
Labels: Compliance Program, Regulatory Inspections, SEC
posted by bhill at 9:36 AM
First Quarter 2007 Personal Securities Transactions
RIA Compliance Consultants, Inc. would like to remind all SEC registered advisor firms of their obligation to collect and review first quarter personal securities transactions. These reports should have been officially collected by the end of April. If your investment advisor firm has not collected its reports, please make sure you do so as soon as possible. Quarterly transaction reports must be submitted no later than 30 days after the end of each calendar quarter. According to the SEC's Investment Adviser Codes of Ethics rule, specifically Rule 204A-1(b)(2), a federally registered investment advisor's code of ethics must require access persons to submit to the chief compliance officer, or other persons designated in the code of ethics, quarterly securities transaction reports that meet the following requirements:
(i) Content of transaction reports. Each transaction report must contain, at a minimum, the following information about each transaction involving a reportable security in which the access person had, or as a result of the transaction acquired, any direct or indirect beneficial ownership:
(A) The date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable security involved;
(B) The nature of the transaction ( i.e. , purchase, sale or any other type of acquisition or disposition);
(C) The price of the security at which the transaction was effected;
(D) The name of the broker, dealer or bank with or through which the transaction was effected; and
(E) The date the access person submits the report.
It is important for investment advisor firms to not only collect these reports, but to also establish a system of reviewing and documenting the reviews of all reports. In particular, the review of personal securities transactions should attempt to detect instances or patterns of when the interests of the firm or its associated persons, including investment advisor reps, are placed ahead of the interests of the clients. Most states also require investment advisor firms to maintain, as part of their books and records, a record of every transaction within a personal account. Most states require the transaction to be reported within 10 days after the end of the calendar quarter in which the transaction occurred. State firms must also implement policies restricting insider trading. If you have questions or concerns about your registered investment advisor firm's requirements to monitor and review personal securities transactions such as what securities are considered reportable securities under the rule, who should review personal securities, and who should be deemed an access person, please consider calling our investment advisor compliance firm to see how we can answer these questions and many more.
(i) Content of transaction reports. Each transaction report must contain, at a minimum, the following information about each transaction involving a reportable security in which the access person had, or as a result of the transaction acquired, any direct or indirect beneficial ownership:
(A) The date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable security involved;
(B) The nature of the transaction ( i.e. , purchase, sale or any other type of acquisition or disposition);
(C) The price of the security at which the transaction was effected;
(D) The name of the broker, dealer or bank with or through which the transaction was effected; and
(E) The date the access person submits the report.
It is important for investment advisor firms to not only collect these reports, but to also establish a system of reviewing and documenting the reviews of all reports. In particular, the review of personal securities transactions should attempt to detect instances or patterns of when the interests of the firm or its associated persons, including investment advisor reps, are placed ahead of the interests of the clients. Most states also require investment advisor firms to maintain, as part of their books and records, a record of every transaction within a personal account. Most states require the transaction to be reported within 10 days after the end of the calendar quarter in which the transaction occurred. State firms must also implement policies restricting insider trading. If you have questions or concerns about your registered investment advisor firm's requirements to monitor and review personal securities transactions such as what securities are considered reportable securities under the rule, who should review personal securities, and who should be deemed an access person, please consider calling our investment advisor compliance firm to see how we can answer these questions and many more.
Labels: Compliance Program, PST
posted by bhill at 2:22 PM
NASD Fines Firm for Record Keeping Violations
Earlier this week, the NASD fined four broker-dealers affiliated with Fidelity Investments. According to the news release published on its website (www.nasd.com), NASD fined the firm a total of $3.75 million for, "improperly maintaining NASD registrations for 1,100 individuals, failing to assign registered supervisors to 1,000 individuals, failing to retain the email of 1,900 registered individuals, and other electronic recordkeeping failures. NASD also ordered the four broker-dealers to conduct comprehensive audits of the firms' systems, policies and procedures relating to registration and electronic recordkeeping."
While the fine was not levied by the SEC against an investment advisor, it is still an excellent reminder for all advisor firms. Regulators do not take the poor implementation of policies and procedures lightly. They are also serious when it comes to firms maintaining required books and records. Under Rule 206(4)-7, it is now unlawful for an investment advisor to conduct business without implementing and enforcing written compliance policies and procedures. Do not be surprised to see enforcement actions handed down in the coming months and years by the SEC for failure to implement effective policies and internal controls. Regardless of your firm's size, if you do not follow through on your policies and procedures, you could face a comparative outcome to what Fidelity is dealing with right now.
One of the best ways to supplement your firm's internal controls and mitigate risk is to retain a compliance consulting firm such as RIA Compliance Consultants. Call us today to discuss our services and find out how we can develop a customize package to fit the needs of your firm.
While the fine was not levied by the SEC against an investment advisor, it is still an excellent reminder for all advisor firms. Regulators do not take the poor implementation of policies and procedures lightly. They are also serious when it comes to firms maintaining required books and records. Under Rule 206(4)-7, it is now unlawful for an investment advisor to conduct business without implementing and enforcing written compliance policies and procedures. Do not be surprised to see enforcement actions handed down in the coming months and years by the SEC for failure to implement effective policies and internal controls. Regardless of your firm's size, if you do not follow through on your policies and procedures, you could face a comparative outcome to what Fidelity is dealing with right now.
One of the best ways to supplement your firm's internal controls and mitigate risk is to retain a compliance consulting firm such as RIA Compliance Consultants. Call us today to discuss our services and find out how we can develop a customize package to fit the needs of your firm.
Labels: Compliance Program, Record Keeping
posted by bhill at 12:00 PM
Attention State IA Firms - Are you in Compliance with the IAA of 1940?
If your firm is registered with a state regulatory body, are you aware that some sections of the Investment Advisors Act of 1940 do apply to your firm? Many state registered firms believe because they are exempt from SEC registration, they are also exempt from all requirements and provisions of the Advisers Act. While it is true that the majority of rules under the Advisers Act apply only to federal firms, there is several provisions that apply to state firms. Therefore, in addition to becoming familar with your home state's rules (and the rules of any state where your firm has clients), state registered firms must still pay close attention to the Advisers Act to identify those provisions the firm must comply with.
The SEC's Division of Investment Management has created an informational page which outlines many of the requirements under the Advisers Act. One particular section regards the provisions applicable to state firms. The following has been quoted directly from the Division of Investment Management's page.
Most provisions of the Advisers Act and Commission rules apply solely to SEC-registered advisers, and therefore are not applicable to state-registered advisers. Thus, state-registered advisers are not required to file and amend Form ADV with the Commission under Rule 204-1; comply with the SEC's books and recodkeeping requirements under Rule 204-2; or deliver a brochure to clients under Rule 204-3. State investment adviser laws, however, may impose substantially the same requirements. For example, many state laws require advisers to register by filing Form ADV with the state.
State-registered advisers are subject to Section 206 of the Advisers Act, which prohibits fraudulent conduct. The Commission has authority to bring enforcement actions against state-registered advisers for fraud. Other provisions of the Advisers Act that apply to state-registered advisers include:
• Section 204A, which requires advisers to establish, maintain, and enforce written procedures reasonably designed to prevent the misuse of material nonpublic information;
• Section 205, which contains prohibitions on advisory contracts that (i) contain certain performance fee arrangements, (ii) permit an assignment of the advisory contract to be made without the consent of the client, and (iii) fail to require an adviser that is a partnership to notify clients of a change in the membership of the partnership. (The exemption provided in Rule 205-3 for certain performance fee arrangements, however, is available to all advisors, including state-registered advisers); and
• Section 206(3), which makes it unlawful for any investment adviser acting as principal for its own account to knowingly sell any security to, or purchase any security from, a client, without disclosing to the client in writing before the completion of the transaction the capacity in which the adviser is acting and obtaining the client's consent. (The exemption provided in Rule 206(3)-2 from the prohibitions of Section 206(3), however, is available to all advisers, including state-registered advisers.)
We invite you to review the entire page authored by the Division of Investment Management click here. Regulatory websites such as the SEC and comparable cites created by states securities department provide a wealth of information and should be consulted on a regular basis. RIA Compliance Consultants has also created a Resource page on our website with links to pertinent websites designed for your convenience and information. We invite you to check our Resource pages at click here.
The SEC's Division of Investment Management has created an informational page which outlines many of the requirements under the Advisers Act. One particular section regards the provisions applicable to state firms. The following has been quoted directly from the Division of Investment Management's page.
Most provisions of the Advisers Act and Commission rules apply solely to SEC-registered advisers, and therefore are not applicable to state-registered advisers. Thus, state-registered advisers are not required to file and amend Form ADV with the Commission under Rule 204-1; comply with the SEC's books and recodkeeping requirements under Rule 204-2; or deliver a brochure to clients under Rule 204-3. State investment adviser laws, however, may impose substantially the same requirements. For example, many state laws require advisers to register by filing Form ADV with the state.
State-registered advisers are subject to Section 206 of the Advisers Act, which prohibits fraudulent conduct. The Commission has authority to bring enforcement actions against state-registered advisers for fraud. Other provisions of the Advisers Act that apply to state-registered advisers include:
• Section 204A, which requires advisers to establish, maintain, and enforce written procedures reasonably designed to prevent the misuse of material nonpublic information;
• Section 205, which contains prohibitions on advisory contracts that (i) contain certain performance fee arrangements, (ii) permit an assignment of the advisory contract to be made without the consent of the client, and (iii) fail to require an adviser that is a partnership to notify clients of a change in the membership of the partnership. (The exemption provided in Rule 205-3 for certain performance fee arrangements, however, is available to all advisors, including state-registered advisers); and
• Section 206(3), which makes it unlawful for any investment adviser acting as principal for its own account to knowingly sell any security to, or purchase any security from, a client, without disclosing to the client in writing before the completion of the transaction the capacity in which the adviser is acting and obtaining the client's consent. (The exemption provided in Rule 206(3)-2 from the prohibitions of Section 206(3), however, is available to all advisers, including state-registered advisers.)
We invite you to review the entire page authored by the Division of Investment Management click here. Regulatory websites such as the SEC and comparable cites created by states securities department provide a wealth of information and should be consulted on a regular basis. RIA Compliance Consultants has also created a Resource page on our website with links to pertinent websites designed for your convenience and information. We invite you to check our Resource pages at click here.
Labels: Compliance Program
posted by bhill at 10:53 AM
Best Execution Review
As an investment advisor, your firm has a fiduciary duty to attempt to achieve best execution for your clients. This means an advisor firm must execute transactions for clients in a manner that the clients' total costs or proceeds in each transaction are most favorable under the circumstances. This obligation is something that should be made part of your firm's annual assessment of its policies and procedures. While RIA Compliance Consultations recommend on-going reviews of broker-dealers used, it is important to conduct at least an annual best execution and due diligence review of all broker-dealers that the advisor directs client trades. This is true for those advisor firms that use only one or two recommended broker-dealers. It is also true even when using a large, reputable broker-dealer such as Fidelity, Fiserve, Pershing, Schwab, or TD Ameritrade.
In selecting a broker-dealer to execute client securities transactions, RIA Compliance Consultants believe it is important to consider the full range of service offered by determining, at a minimum, the following:
- Execution capabilities including the ability to handle trades and answer
calls in a volatile market
- Commission rates
- Financial responsibility
- Value of research or brokerage provided
- Technology provided
- Willingness, ability, facilities and infrastructure to work with investment
advisor firms
- Administrative resources
- Responsiveness
- Pricing for services provided
It is also important to note that regulators have indicated that best execution is not determined by just the lowest possible commission costs but by the best qualitative execution. Therefore, it is not only okay, but necessary to conduct a quantitative and qualitative review of broker-dealers used. Firm should systematically and periodically evaluate broker-dealers used along with other broker/dealers to ensure that the firm's recommended broker-dealers' best execution services are optimal.
In selecting a broker-dealer to execute client securities transactions, RIA Compliance Consultants believe it is important to consider the full range of service offered by determining, at a minimum, the following:
- Execution capabilities including the ability to handle trades and answer
calls in a volatile market
- Commission rates
- Financial responsibility
- Value of research or brokerage provided
- Technology provided
- Willingness, ability, facilities and infrastructure to work with investment
advisor firms
- Administrative resources
- Responsiveness
- Pricing for services provided
It is also important to note that regulators have indicated that best execution is not determined by just the lowest possible commission costs but by the best qualitative execution. Therefore, it is not only okay, but necessary to conduct a quantitative and qualitative review of broker-dealers used. Firm should systematically and periodically evaluate broker-dealers used along with other broker/dealers to ensure that the firm's recommended broker-dealers' best execution services are optimal.
Labels: Best Execution, Compliance Program
posted by bhill at 12:31 PM
Have you considered a mock regulatory examination or training audit?
As the new business year begins, many firms are constructing their compliance budgets and initiatives for 2007. A tool we feel can be vital for measuring your firm's compliance barometer is to hire an outside consulting firm to conduct mock examinations or training audit. Such a visit from an outside consulting firm, such as RIA Compliance Consultants, can provide numerous benefits for a firm, regardless of its size. A mock examination provides an objective look at the compliance and regulatory structure of your advisor firm. It can help assess whether or not your firm is prepared for an actual regulatory visit and what the firm needs to do to shore up its compliance policies and procedures. Such a visit also provides an opportunity to receive training from an outside expert who is focused on helping advisor firms meet their fiduciary and regulatory responsibilities. It can also be integrated into your firm's assessment of its internal policies and procedures. It indicates to regulators that the firm is committed to a culture of compliance.
Ultimately, if you are a CCO you have to ask yourself "Is my firm really ready for an SEC visit?" If you can not provide an assertive positive response, it may be time to seek help from an outside consulting firm such as RIA Compliance Consultants. If you would like to learn more about our mock audits, training audits, or our different levels of engagement, please contact us today.
Ultimately, if you are a CCO you have to ask yourself "Is my firm really ready for an SEC visit?" If you can not provide an assertive positive response, it may be time to seek help from an outside consulting firm such as RIA Compliance Consultants. If you would like to learn more about our mock audits, training audits, or our different levels of engagement, please contact us today.
Labels: Compliance Program, Regulatory Inspections
posted by bhill at 11:55 AM
Annual Assessment of Written Compliance Programs
The end of the year is a great time to complete a written review of your investment advisor firm's compliance and procedures program. In fact, if your firm is registered with the SEC and you have not done a written analysis of your compliance program within the last 12 months, you need to complete such a review as soon as possible. While we believe that a written compliance program should be reviewed continuously and updated whenever needed, SEC registered firms are required to review and update their compliance programs at least annually. The key is to document these reviews and maintain them as part of the firm's master books and records. Previous versions of the firm's written policies and procedures must also be maintained under the books and records rules. Issues identified during the review must be documented and a plan of action formulated to take corrective action.
When changes are made to a compliance policy and/or procedure, employees should be made aware of the changes and required to sign off on their understanding and acknowledgement of the policies. Even if no changes are made, we suggest that all employees agree to their understanding and acknowledgement of the firm's policies and procedures, in writing, each year.
If your firm has questions or concerns about the firm's compliance programs annual assessment, please give us a call to discuss how we can help your firm meet its regulatory obligations.
When changes are made to a compliance policy and/or procedure, employees should be made aware of the changes and required to sign off on their understanding and acknowledgement of the policies. Even if no changes are made, we suggest that all employees agree to their understanding and acknowledgement of the firm's policies and procedures, in writing, each year.
If your firm has questions or concerns about the firm's compliance programs annual assessment, please give us a call to discuss how we can help your firm meet its regulatory obligations.
Labels: Compliance Program
posted by bhill at 11:46 AM
Annual Review of Compliance Programs – Rule 206(4)-7
As outlined in Rule 206(4)-7(b) of the Investment Advisers Act, it is unlawful for an SEC registered investment advisor firm to provide investment advice to clients unless the firm, no less frequently than annually, reviews the adequacy of the firm’s written compliance and supervisory policies. An SEC registered firm must establish written policies and procedures to prevent violation, by the firm and its supervised persons, of the Act and the rules thereunder.
While regulators require advisor firms to review and update their written compliance programs at least annually we feel that written compliance programs should be reviewed continuously and updated whenever needed. The key to any review is to document the review and include the documentation with the firm’s books and records. Once a review is completed, employees should be made aware of the changes and required to sign off on their understanding and acknowledgement of the policies. Even if no changes are made, we suggest that all employees agree, in writing, to their understanding and commitment to abide by the firm's policies and procedures each year.
One of the best ways to conduct the required annual review is to use the services of an outside consulting firm, such as RIA Compliance Consultants. The use of an outside, independent firm provides an objective review of your firm’s policies and procedures. It also illustrates to the SEC your commitment to implementing the firm’s policies and procedures. If you would like to discuss the possibility of RIA Compliance Consultants conducting an annual review of your firm’s written compliance programs give us a call today!
While regulators require advisor firms to review and update their written compliance programs at least annually we feel that written compliance programs should be reviewed continuously and updated whenever needed. The key to any review is to document the review and include the documentation with the firm’s books and records. Once a review is completed, employees should be made aware of the changes and required to sign off on their understanding and acknowledgement of the policies. Even if no changes are made, we suggest that all employees agree, in writing, to their understanding and commitment to abide by the firm's policies and procedures each year.
One of the best ways to conduct the required annual review is to use the services of an outside consulting firm, such as RIA Compliance Consultants. The use of an outside, independent firm provides an objective review of your firm’s policies and procedures. It also illustrates to the SEC your commitment to implementing the firm’s policies and procedures. If you would like to discuss the possibility of RIA Compliance Consultants conducting an annual review of your firm’s written compliance programs give us a call today!
Labels: Compliance Program
posted by bhill at 4:37 PM
SEC Cites Firm for Failing to Implement Written Compliance Programs
Earlier this month, the SEC filed an administrative proceeding against an advisor firm for, among other things, failing to meet the requirements of Rule 206(4)-7 which requires an investment adviser registered with the SEC to adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers Act and the rules there under. During a follow-up visit the SEC felt the firm failed to adequately correct deficiencies noted during a previous examination. In addition, the firm had not implemented any written compliance programs designed to meet the requirements of Rule 206(4)-7. The firm was censured, order to cease and desist from violating several rules under the Advisers Act, and ordered to pay a monetary fine totaling $65,000.
This case is just the latest example of the seriousness with which the SEC is taking regarding the requirements of advisor firms to implement strong internal controls and written compliance programs designed to prevent the violation of federal securities laws. It is important to note that the compliance programs rule falls under the anti-fraud provisions of the Advisers Act. While the firm in this case had other issues, the key lesson to be learned is that the SEC will cite firms for simply failing to have compliance programs. This can be the case even if actual violations are not detected.
If your firm has not implemented written compliance programs, it is urgent you do so immediately. Rule 206(4)-7 has been in effect since October 2004 and the SEC will expect compliance programs to be in place, implemented, and reviewed on an annual basis.
If you would like to read the SEC's entire administrative proceeding click on the following link here.
This case is just the latest example of the seriousness with which the SEC is taking regarding the requirements of advisor firms to implement strong internal controls and written compliance programs designed to prevent the violation of federal securities laws. It is important to note that the compliance programs rule falls under the anti-fraud provisions of the Advisers Act. While the firm in this case had other issues, the key lesson to be learned is that the SEC will cite firms for simply failing to have compliance programs. This can be the case even if actual violations are not detected.
If your firm has not implemented written compliance programs, it is urgent you do so immediately. Rule 206(4)-7 has been in effect since October 2004 and the SEC will expect compliance programs to be in place, implemented, and reviewed on an annual basis.
If you would like to read the SEC's entire administrative proceeding click on the following link here.
Labels: Compliance Program, Enforcement
posted by bhill at 10:42 AM
End of Year Compliance Items - Part 3
This is the third entry in a series of blogs RIA Compliance Consultants is posting concerning annual compliance requirements and end of year filings. While we are trying to touch upon the items that all advisor firms are required to complete, it is important that you refer to your regulatory authority to ensure you have an all inclusive list of the requirements your firm must meet. If your firm has questions or concerns about one of the items listed in this entry, please give us a call to discuss how we can help your firm meets its regulatory obligations.
Written Compliance Programs - The end of the year is a great time to complete a written review of your firm's compliance and procedures program. While we feel that a written compliance program should be reviewed continuously and updated whenever needed, regulators require advisor firms to review and update their compliance programs at least annually. Again, the key is to document those reviews. Once a review is completed, employees should be made aware of the changes and required to sign off on their understanding and acknowledgement of the policies. Even if no changes are made, we suggest that all employees agree to their understanding and acknowledgement of the firm's policies and procedures, in writing, each year.
Code of Ethics - The SEC and many states require advisor firms to have a Code of Ethics. Even if your firm does not require its employees to acknowledge their understanding of its compliance programs on an annual basis, all SEC firms must require all employees to read and agree to abide by the firm's Code of Ethics on an annual basis. The Code of Ethics must be reviewed by the firm on annual basis and if needed, updated. It is important to document any changes to the Code of Ethics and document each employee's agreement to abide by the code. Under the SEC's rule, a firm must include the review of employee's personal securities and its insider trading policy under the Code of Ethics.
Personal Securities Transactions - All SEC advisor firms must collect or prepare updated personal securities holdings reports from all access persons. The information on the report must be current as of a date no more than 45 days before the report is submitted. The annual report does not need to be done at the end of the calendar year; however, the timing of the report must be consistent from year to year. The holdings report is in addition to the review of fourth quarter transaction reports. As part of the Code of Ethics rule, all SEC advisor firms are required to review the activity of their access persons' securities holdings. Quarterly transaction reports must be submitted no later than 30 days after the end of each calendar quarter.
Compliance Training for Representatives and Employees - The end of the year is great time to hold compliance training for all employees and representatives. This is because many firms implement new policies or advisory programs set to take effect at the beginning of the year. Any time a new rule or program is implemented, it is imperative that proper training be provided so all employees are aware of the changes. While we recommend more frequent training sessions or meetings, an annual process is essential in today's regulatory landscape.
Written Compliance Programs - The end of the year is a great time to complete a written review of your firm's compliance and procedures program. While we feel that a written compliance program should be reviewed continuously and updated whenever needed, regulators require advisor firms to review and update their compliance programs at least annually. Again, the key is to document those reviews. Once a review is completed, employees should be made aware of the changes and required to sign off on their understanding and acknowledgement of the policies. Even if no changes are made, we suggest that all employees agree to their understanding and acknowledgement of the firm's policies and procedures, in writing, each year.
Code of Ethics - The SEC and many states require advisor firms to have a Code of Ethics. Even if your firm does not require its employees to acknowledge their understanding of its compliance programs on an annual basis, all SEC firms must require all employees to read and agree to abide by the firm's Code of Ethics on an annual basis. The Code of Ethics must be reviewed by the firm on annual basis and if needed, updated. It is important to document any changes to the Code of Ethics and document each employee's agreement to abide by the code. Under the SEC's rule, a firm must include the review of employee's personal securities and its insider trading policy under the Code of Ethics.
Personal Securities Transactions - All SEC advisor firms must collect or prepare updated personal securities holdings reports from all access persons. The information on the report must be current as of a date no more than 45 days before the report is submitted. The annual report does not need to be done at the end of the calendar year; however, the timing of the report must be consistent from year to year. The holdings report is in addition to the review of fourth quarter transaction reports. As part of the Code of Ethics rule, all SEC advisor firms are required to review the activity of their access persons' securities holdings. Quarterly transaction reports must be submitted no later than 30 days after the end of each calendar quarter.
Compliance Training for Representatives and Employees - The end of the year is great time to hold compliance training for all employees and representatives. This is because many firms implement new policies or advisory programs set to take effect at the beginning of the year. Any time a new rule or program is implemented, it is imperative that proper training be provided so all employees are aware of the changes. While we recommend more frequent training sessions or meetings, an annual process is essential in today's regulatory landscape.
Labels: Code of Ethics, Compliance Program, Compliance Training, PST
posted by bhill at 2:17 PM
End of Year Compliance Items - Part 2
This is the second entry in a series of blogs RIA Compliance Consultants is posting concerning annual compliance requirements and end of year filings. While we are trying to touch upon the items that all advisor firms are required to complete, it is important that you refer to your regulatory authority to ensure you have an all inclusive list of the requirements your firm must meet. If your firm has questions or concerns about one of the items listed in this entry, please give us a call to discuss how we can help your firm meet its regulatory obligations.
Financial Statements - If your advisor firm is registered with one or more states, you may be required to submit certain financial statements to the state regulators on an annual basis. Many states have certain net worth or net capital requirements. Some states also have surety bond requirements. Most states that have these provisions require advisor firms to substantiate they are in compliance with the rules by submitting financial statements. In some cases the financial statements must be submitted at the end of the firm's fiscal year and in some states the financial records must be submitted at the end of the calendar year. In addition to any forms the firm may have to submit directly to regulators, it is essential the firm has updated all of its financial records under the regulatory books and records requirements. This is true for state and SEC registered advisor firms.
Form ADV Annual Amendment - The SEC and almost all states require advisor firms to amend their Form ADV on at least an annual basis in the form of an Annual Amendment. The Annual Amendment must be completed within 90 days after an advisor firm's fiscal year end. Since the majority of advisor firms coordinate their fiscal year end with the end of the calendar year, the Annual Amendment has become a requirement that must be completed at the beginning of each year for most firms. The main item that must be updated on the Annual Amendment is the firm's assets under management. Other items such as, but not limited to, the number of accounts, clients, employees, and advisor representatives should also be updated. The Annual Amendment can also be used to disclose any material changes. Keep in mind, however, that material changes need to be disclosed within 30 days no matter when they take place. Material changes include items such as, but are not limited to, reportable disciplinary and financial disclosures, changes in advisory programs, changes in fee arrangements and changes in billing practices.
Outside Business Activities and other Form U4 Amendments - The end of the year is a great time to remind all employees and advisor representatives to officially disclose their outside business activities to the firm. The disclosure of outside business activities must be done for three important reasons. Those reasons are to ensure the individual's Form U4 is current and up to date, ensure the firm's Form ADV does not need to be amended due to an individual's business activities, and finally, so the firm can determine if an individual's outside activities are in conflict with the firm's policies and in conflict with a client's best interests. In addition to disclosing outside business activities, updating other items on the Form U4 must also be completed when those items are materially inaccurate.
Financial Statements - If your advisor firm is registered with one or more states, you may be required to submit certain financial statements to the state regulators on an annual basis. Many states have certain net worth or net capital requirements. Some states also have surety bond requirements. Most states that have these provisions require advisor firms to substantiate they are in compliance with the rules by submitting financial statements. In some cases the financial statements must be submitted at the end of the firm's fiscal year and in some states the financial records must be submitted at the end of the calendar year. In addition to any forms the firm may have to submit directly to regulators, it is essential the firm has updated all of its financial records under the regulatory books and records requirements. This is true for state and SEC registered advisor firms.
Form ADV Annual Amendment - The SEC and almost all states require advisor firms to amend their Form ADV on at least an annual basis in the form of an Annual Amendment. The Annual Amendment must be completed within 90 days after an advisor firm's fiscal year end. Since the majority of advisor firms coordinate their fiscal year end with the end of the calendar year, the Annual Amendment has become a requirement that must be completed at the beginning of each year for most firms. The main item that must be updated on the Annual Amendment is the firm's assets under management. Other items such as, but not limited to, the number of accounts, clients, employees, and advisor representatives should also be updated. The Annual Amendment can also be used to disclose any material changes. Keep in mind, however, that material changes need to be disclosed within 30 days no matter when they take place. Material changes include items such as, but are not limited to, reportable disciplinary and financial disclosures, changes in advisory programs, changes in fee arrangements and changes in billing practices.
Outside Business Activities and other Form U4 Amendments - The end of the year is a great time to remind all employees and advisor representatives to officially disclose their outside business activities to the firm. The disclosure of outside business activities must be done for three important reasons. Those reasons are to ensure the individual's Form U4 is current and up to date, ensure the firm's Form ADV does not need to be amended due to an individual's business activities, and finally, so the firm can determine if an individual's outside activities are in conflict with the firm's policies and in conflict with a client's best interests. In addition to disclosing outside business activities, updating other items on the Form U4 must also be completed when those items are materially inaccurate.
Labels: Compliance Program, Financial Statements, Form ADV, Outside Business Activities
posted by bhill at 2:08 PM
Internal Controls - Supervision
A recent administrative complaint filed by the State of Massachusetts against a broker/dealer provides another reminder of the importance of strong internal compliance and supervision policies and procedures. In the complaint, Massachusetts is alleging that the named firm instituted weak internal supervisory programs that have enabled its registered representatives to conduct investment advisory activities without being licensed as investment advisor representatives, which in turn led to unsuitable sales of equity-indexed annuities.
The overriding allegation cited in the complaint is the firm's lack of sufficient supervision and internal controls; and while the complaint is against a broker/dealer, it provides an important lesson for investment advisor firms. Investment advisors need to have established and implemented effective internal controls that are specific to the firm's operating and business procedures.
While there are many ingredients to an effective compliance program, this recent regulatory action by Massachusetts highlights at least three areas of focus. First, advisor firms should establish a system that requires advisor representatives and employees to disclose outside business activities. The firm needs to review, approve/reject, and monitor all outside business activities. Not only must outside activities be disclosed on the Form U4, but depending on the type of outside activity and the employee, it may also need to be disclosed on the Form ADV. In addition, an employee's outside activity may potentially come into conflict with the firm's code of ethics or insider trading policy. An outside activity could also cause potential or real conflicts of interest between the advisor representative and his clients. Advisor firms that do not establish effective policies to review outside business activities and then take appropriate actions based on such reviews are running the risk of future regulatory issues.
A second vital part of any compliance program is having an effective supervision and review program of client accounts to ensure a client's investment objectives are being met. This includes requiring advisor representatives to only provide services and advice with respect to products that are approved by the firm. Furthermore, it necessary to ensure that those products/services, such as outside money managers, are subject to effective due diligence.
A final component to a good compliance program is conducting on-going monitoring and training of advisory services and annual audits. Advisor firms need to ensure their representatives and employees have a complete and accurate understanding of the firm's policies and procedures and all applicable regulatory requirements. One of the best ways to accomplish this is by having an annual face-to-face audit each year coupled with on-going training and monitoring procedures.
Has your firm instituted effective compliance and supervisory procedures dealing with outside business activities, unsuitable sales practices, client suitability, supervision, and monitoring of wholesalers and third-party vendors. Do you feel confident your financial advisors are properly supervised and your firm has established an effective compliance program? Or has your firm's compliance programs grown stagnant? Maybe you need objective advice from a third-party to help improve your internal controls. Is so, give us a call or send us an e-mail. Our goal is to identify deficiencies in your firm's compliance programs before trouble arises.
The overriding allegation cited in the complaint is the firm's lack of sufficient supervision and internal controls; and while the complaint is against a broker/dealer, it provides an important lesson for investment advisor firms. Investment advisors need to have established and implemented effective internal controls that are specific to the firm's operating and business procedures.
While there are many ingredients to an effective compliance program, this recent regulatory action by Massachusetts highlights at least three areas of focus. First, advisor firms should establish a system that requires advisor representatives and employees to disclose outside business activities. The firm needs to review, approve/reject, and monitor all outside business activities. Not only must outside activities be disclosed on the Form U4, but depending on the type of outside activity and the employee, it may also need to be disclosed on the Form ADV. In addition, an employee's outside activity may potentially come into conflict with the firm's code of ethics or insider trading policy. An outside activity could also cause potential or real conflicts of interest between the advisor representative and his clients. Advisor firms that do not establish effective policies to review outside business activities and then take appropriate actions based on such reviews are running the risk of future regulatory issues.
A second vital part of any compliance program is having an effective supervision and review program of client accounts to ensure a client's investment objectives are being met. This includes requiring advisor representatives to only provide services and advice with respect to products that are approved by the firm. Furthermore, it necessary to ensure that those products/services, such as outside money managers, are subject to effective due diligence.
A final component to a good compliance program is conducting on-going monitoring and training of advisory services and annual audits. Advisor firms need to ensure their representatives and employees have a complete and accurate understanding of the firm's policies and procedures and all applicable regulatory requirements. One of the best ways to accomplish this is by having an annual face-to-face audit each year coupled with on-going training and monitoring procedures.
Has your firm instituted effective compliance and supervisory procedures dealing with outside business activities, unsuitable sales practices, client suitability, supervision, and monitoring of wholesalers and third-party vendors. Do you feel confident your financial advisors are properly supervised and your firm has established an effective compliance program? Or has your firm's compliance programs grown stagnant? Maybe you need objective advice from a third-party to help improve your internal controls. Is so, give us a call or send us an e-mail. Our goal is to identify deficiencies in your firm's compliance programs before trouble arises.
Labels: Compliance Program
posted by bhill at 4:03 PM
NASAA Report on State Investment Advisor Exams
Back in September, the North American Securities Administrators Association (NASAA) released a series of recommended best practices for state advisor firms' compliance programs. The best practices are a result of a NASAA sweep and subsequent report completed and released this year. According to a NASAA press release, the following are recommended best practices:
1) Review and revise Form ADV and the disclosure brochure annually to reflect current and accurate information;
2) Review and update all advisory contracts;
3) Prepare a written supervisory procedures manual relevant to the advisor's business;
4) Prepare and distribute a privacy policy initially and annually;
5) Prepare and maintain all required records;
6) Maintain a surety bond, if required;
7) Prepare and maintain client profiles;
8) Calculate and document fees correctly;
9) Review and revise all advertisements, including performance and advertisements and websites; and
10) Implement appropriate custody safeguards, if applicable.
In addition to the best practice recommendations, a review of the report's most common regulatory deficiencies are quite revealing. The most common deficiency cited relates to registration issues, particularly inaccurate information on the Form ADV, failing to provide clients with a copy of the firm disclosure brochure in a timely manner, and failing to provide or offer to provide a copy of the updated disclosure brochure each year. Other common deficiencies include inadequate supervisory programs and failing to provide a customer privacy statement to all clients. To read the entire NASAA report click here.
RIA Compliance Consultants is focused on helping advisor firms, of all sizes, establish well-run, customized compliance policies and procedures. Our firm specializes in conducting mock SEC and state audits that are focused on identifying and correcting deficiencies. Has your firm implemented NASAA's recommended best practices? Are you confident your firm would pass the scrutiny of a regulator? If you are interested in discussing ways to improve your compliance programs and better prepare your firm for a regulatory review, give us a call.
1) Review and revise Form ADV and the disclosure brochure annually to reflect current and accurate information;
2) Review and update all advisory contracts;
3) Prepare a written supervisory procedures manual relevant to the advisor's business;
4) Prepare and distribute a privacy policy initially and annually;
5) Prepare and maintain all required records;
6) Maintain a surety bond, if required;
7) Prepare and maintain client profiles;
8) Calculate and document fees correctly;
9) Review and revise all advertisements, including performance and advertisements and websites; and
10) Implement appropriate custody safeguards, if applicable.
In addition to the best practice recommendations, a review of the report's most common regulatory deficiencies are quite revealing. The most common deficiency cited relates to registration issues, particularly inaccurate information on the Form ADV, failing to provide clients with a copy of the firm disclosure brochure in a timely manner, and failing to provide or offer to provide a copy of the updated disclosure brochure each year. Other common deficiencies include inadequate supervisory programs and failing to provide a customer privacy statement to all clients. To read the entire NASAA report click here.
RIA Compliance Consultants is focused on helping advisor firms, of all sizes, establish well-run, customized compliance policies and procedures. Our firm specializes in conducting mock SEC and state audits that are focused on identifying and correcting deficiencies. Has your firm implemented NASAA's recommended best practices? Are you confident your firm would pass the scrutiny of a regulator? If you are interested in discussing ways to improve your compliance programs and better prepare your firm for a regulatory review, give us a call.
Labels: Compliance Program, Regulatory Inspections
posted by bhill at 4:11 PM
First Internal Audit
Has your investment advisor firm completed its first annual review or internal audit of its compliance program?
In February 2004, the SEC adopted Rule 206(4)-7 requiring all investment advisor firms to design and implement written compliance policies and procedures. The compliance date was October 5, 2004. Additionally, this rule requires a documented annual audit of the firm's compliance program and any necessary updates and revisions. The first review must be performed within 18 months of when the firm implemented its compliance program as described above. In other words, the first review must be performed at the latest by April 5, 2006 (depending upon your firm's implementation date of its policies and procedures).
If you would like RIA Compliance Consultants to conduct such an examination of your firm's policies and procedures, please give us a call.
In February 2004, the SEC adopted Rule 206(4)-7 requiring all investment advisor firms to design and implement written compliance policies and procedures. The compliance date was October 5, 2004. Additionally, this rule requires a documented annual audit of the firm's compliance program and any necessary updates and revisions. The first review must be performed within 18 months of when the firm implemented its compliance program as described above. In other words, the first review must be performed at the latest by April 5, 2006 (depending upon your firm's implementation date of its policies and procedures).
If you would like RIA Compliance Consultants to conduct such an examination of your firm's policies and procedures, please give us a call.
Labels: Compliance Program
posted by bhill at 6:22 PM
Written Policies for Block Trades
Does your firm implement transactions on an aggregate (a/k/a bunching or block trade) basis? If so, have you established written policies and procedures laying out your firm's aggregate trading activities? Do you disclose those procedures in your firm's Form ADV or disclosure brochure?
The SEC has provided guidance for this type of activity and is mainly concerned that allocations are done in a fair and equitable manner. Basically, an advisor firm needs have procedures that ensure no client accounts are systematically disadvantaged.
In 1995, the SEC provided a no-action letter to SMC Capital, Inc. In its letter, the SEC provided the following guidance on how to implement and execute orders done on an aggregate basis.
We strongly encourage all advisor firms that aggregate client orders to follow these minimum guidelines. If you have any questions on what constitutes aggregating client orders or if your written policies and procedures are accurate, please give us a call.
The SEC has provided guidance for this type of activity and is mainly concerned that allocations are done in a fair and equitable manner. Basically, an advisor firm needs have procedures that ensure no client accounts are systematically disadvantaged.
In 1995, the SEC provided a no-action letter to SMC Capital, Inc. In its letter, the SEC provided the following guidance on how to implement and execute orders done on an aggregate basis.
Clients must receive equal treatment.
Each client participating in an aggregated order must receive the average share price for all of the advisor's transactions in that security on any given day, with transaction costs shared pro rata based on participation.
The firm's procedures need to be spelled out in the compliance and supervisory procedures manual. The policies also need to be disclosed in the Form ADV, provided to each affected client, and to the broker/dealers through which the orders are placed.
Properly completed trade ticket for the order must be prepared.
Partially filled orders must be filled pro rata based on the written aggregation statement.
Advisor must not receive additional compensation due to an aggregated order.
The firm's books and records must reflect securities held by, or bought or sold for, participating client accounts.
If an order is filled in a manner different from the written policies, all clients must receive equal treatment and the written rationale for the departure must be approved by the CCO.
Client funds and securities must be deposited with custodians and will not be held collectively any longer than is necessary to settle the transaction.
We strongly encourage all advisor firms that aggregate client orders to follow these minimum guidelines. If you have any questions on what constitutes aggregating client orders or if your written policies and procedures are accurate, please give us a call.
Labels: Compliance Program
posted by bhill at 6:24 PM
Create a Culture of Compliance Through On-Going Training and Education
Regulators have been emphasizing the need for investment advisors to develop and maintain a culture of compliance. Of course, one of the best ways to implement a culture of compliance is for the firm to establish adequate training and continuing education programs.
We recommend that advisor firms hold some form of compliance training or meetings on a monthly basis. These could come in the form of department meetings, on-line continuing education programs, or company-wide teleconferences or web-casts. Each session should be documented and a list kept of those in attendance or those that completed the training.
In light of the SEC's Code of Ethics rule, a special emphasis needs be given to training employees and advisor representatives on the firm's Code of Ethics, which would include the firm's insider trading and personal securities transactions policies. Further topics for compliance meetings and training could cover other policies and procedures of the firm, recent regulatory changes and current compliance hot topics.
Another important requirement is to ensure all employees and advisor representatives read and acknowledge their understanding of the firm's compliance and supervisory procedures manual(s). This should be done on at least an annual basis. In addition, any updates made throughout the year should be sent to every employee and advisory representative upon implementation.
Does your firm have a good continuing education program? Do you provide on-going compliance training? Maybe you do and just need a little guidance on what to cover next. Whatever the case may be, give us a call. We can help you identify and prioritize the issues that your advisor representatives need to know so your firm can achieve a culture of compliance.
We recommend that advisor firms hold some form of compliance training or meetings on a monthly basis. These could come in the form of department meetings, on-line continuing education programs, or company-wide teleconferences or web-casts. Each session should be documented and a list kept of those in attendance or those that completed the training.
In light of the SEC's Code of Ethics rule, a special emphasis needs be given to training employees and advisor representatives on the firm's Code of Ethics, which would include the firm's insider trading and personal securities transactions policies. Further topics for compliance meetings and training could cover other policies and procedures of the firm, recent regulatory changes and current compliance hot topics.
Another important requirement is to ensure all employees and advisor representatives read and acknowledge their understanding of the firm's compliance and supervisory procedures manual(s). This should be done on at least an annual basis. In addition, any updates made throughout the year should be sent to every employee and advisory representative upon implementation.
Does your firm have a good continuing education program? Do you provide on-going compliance training? Maybe you do and just need a little guidance on what to cover next. Whatever the case may be, give us a call. We can help you identify and prioritize the issues that your advisor representatives need to know so your firm can achieve a culture of compliance.
Labels: Code of Ethics, Compliance Program
posted by bhill at 10:12 PM
Anti-Money Laundering Procedures
You may have heard that anti-money laundering (AML) reviews have become a routine part of regulatory examinations for broker/dealers. However, are you aware that as an investment advisor, your AML procedures (or lack thereof) may be reviewed as well?
This appears to be the case even though the SEC and most states have not passed formal rules requiring advisor firms to establish AML procedures. In fact, there is a recent report of a state-registered investment advisor firm in Texas cited for having inadequate AML policies and procedures by the Texas State Securities Board. This action by the State of Texas was surprising due to the fact that Texas has not passed a rule requiring an advisor to establish AML policies.
There's talk within the industry that the SEC may soon pass a rule requiring investment advisor firms to create and implement procedures regarding AML. We recommend that all advisor firms be proactive in this area and implement AML procedures now as a best practice.
Until the SEC passes a formal rule for advisor firms, we encourage you to visit this NASD website page as it serves as an excellent start for formulating your own procedures. If you need further guidance, RIA Compliance Consultants is available to help you understand all of the issues surrounding AML so you can institute sufficient policies and procedures.
This appears to be the case even though the SEC and most states have not passed formal rules requiring advisor firms to establish AML procedures. In fact, there is a recent report of a state-registered investment advisor firm in Texas cited for having inadequate AML policies and procedures by the Texas State Securities Board. This action by the State of Texas was surprising due to the fact that Texas has not passed a rule requiring an advisor to establish AML policies.
There's talk within the industry that the SEC may soon pass a rule requiring investment advisor firms to create and implement procedures regarding AML. We recommend that all advisor firms be proactive in this area and implement AML procedures now as a best practice.
Until the SEC passes a formal rule for advisor firms, we encourage you to visit this NASD website page as it serves as an excellent start for formulating your own procedures. If you need further guidance, RIA Compliance Consultants is available to help you understand all of the issues surrounding AML so you can institute sufficient policies and procedures.
Labels: Compliance Program
posted by bhill at 8:27 AM
Emails Are Under Scrutiny
Is your firm keeping its emails? Have these records been kept in an electronic, searchable format? Can you promptly retrieve an email from five years ago? These are questions that investment advisors are now facing during routine exams by the SEC. As you prepare for your next exam, here are few items to consider.
First, an SEC registered investment advisor is required under SEC Rule 204-2 to maintain certain books and records for specified periods, including those specified records that are in the form of emails. (There's a similar requirement under state regulations for state registered advisors.) In particular, this retention requirement includes all emails to and from a client or prospective client, all internal email regarding a client (including those concerning documentation, instructions, contracts, disclosures, receipt of disclosures, suitability information and investment recommendations), and numerous business related (addressing internal governance, finances and operations, transactions, and marketing) emails. For a complete listing of the documents subject to retention requirements, the actual retention periods and appropriate storage mediums, please refer to the actual rule.
Second, please understand that an investment advisor's emails will be reviewed as part of your firm's next SEC examination. The most recent focus has been on the top four officials of the firm. Examiners have been asking for all emails of the top four executives for the past 6 months to 2 years. Keep in mind that emails fall under the 5 year books and records requirement.
Third, examiners have indicated that the produced emails should be in their original electronic format. It appears that firm producing hard copies face greater scrutiny. Moreover, examiners have indicated that the emails need to be produced promptly, which has been defined by the examiners as a few hours. This is a change from the previous practice of allowing 24 hours to produce such requested documents.
With this in mind, your firm needs to make sure that it has carefully established a comprehensive written policy regarding email. This policy should be communicated to your staff and representatives and integrated into your employee and rep continuing education/training program. Next, the firm needs to establish procedures/systems for reviewing its email and devise internal controls to detect whether any employees or reps are using emails outside such a review system. Depending upon your firm's situation, it's possible that your firm will want to utilize specialized software designed for surveillance and supervision of email.
If you have any questions or need assistance in preparing your firm's policies and supervisory procedures related to email usage, please do not hesitate to contact RIA Compliance Consultants.
First, an SEC registered investment advisor is required under SEC Rule 204-2 to maintain certain books and records for specified periods, including those specified records that are in the form of emails. (There's a similar requirement under state regulations for state registered advisors.) In particular, this retention requirement includes all emails to and from a client or prospective client, all internal email regarding a client (including those concerning documentation, instructions, contracts, disclosures, receipt of disclosures, suitability information and investment recommendations), and numerous business related (addressing internal governance, finances and operations, transactions, and marketing) emails. For a complete listing of the documents subject to retention requirements, the actual retention periods and appropriate storage mediums, please refer to the actual rule.
Second, please understand that an investment advisor's emails will be reviewed as part of your firm's next SEC examination. The most recent focus has been on the top four officials of the firm. Examiners have been asking for all emails of the top four executives for the past 6 months to 2 years. Keep in mind that emails fall under the 5 year books and records requirement.
Third, examiners have indicated that the produced emails should be in their original electronic format. It appears that firm producing hard copies face greater scrutiny. Moreover, examiners have indicated that the emails need to be produced promptly, which has been defined by the examiners as a few hours. This is a change from the previous practice of allowing 24 hours to produce such requested documents.
With this in mind, your firm needs to make sure that it has carefully established a comprehensive written policy regarding email. This policy should be communicated to your staff and representatives and integrated into your employee and rep continuing education/training program. Next, the firm needs to establish procedures/systems for reviewing its email and devise internal controls to detect whether any employees or reps are using emails outside such a review system. Depending upon your firm's situation, it's possible that your firm will want to utilize specialized software designed for surveillance and supervision of email.
If you have any questions or need assistance in preparing your firm's policies and supervisory procedures related to email usage, please do not hesitate to contact RIA Compliance Consultants.
Labels: Compliance Program
posted by bhill at 12:10 PM
Texas Proposes Written Supervisory Procedures Rule
In light of the SEC's new rule requiring federally registered investment advisor firms to adopt and implement written compliance programs, many state registered firms are wondering if state regulators will require written supervisory systems too.
Such a rule was proposed recently in Texas and could be effective as early as the end of the year. Several states that already require written compliance procedures include Missouri, Wisconsin, Indiana, Maryland, North Carolina, and New Hampshire. In our opinion, it's simply a matter of time before all states require written compliance and supervisory procedures for investment advisors.
If you are unsure of your state's requirements or would like to develop a written compliance program, RIA Compliance Consultants is available to help make sure your firm is in full compliance.
Such a rule was proposed recently in Texas and could be effective as early as the end of the year. Several states that already require written compliance procedures include Missouri, Wisconsin, Indiana, Maryland, North Carolina, and New Hampshire. In our opinion, it's simply a matter of time before all states require written compliance and supervisory procedures for investment advisors.
If you are unsure of your state's requirements or would like to develop a written compliance program, RIA Compliance Consultants is available to help make sure your firm is in full compliance.
Labels: Compliance Program
posted by bhill at 8:41 PM
Has Your Firm Completed Its Required Review of Compliance Policies & Procedures?
Has your registered investment advisor firm implemented written compliance procedures? Has your Chief Compliance Officer signed off on those procedures? Have the procedures been reviewed and updated since October 5, 2004, the date they were required to be in effect? These are all questions that the SEC will be asking during an examination.
Under Rule 206(4)-7 of the Investment Advisers Act, all SEC registered advisor firms are required to review their compliance and supervisory policies and procedures at least annually. In fact, the Rule states it is unlawful to conduct advisory business unless (1) the firm has established written compliance programs, (2) annually reviews the programs, and (3) has designated a CCO.
Investment advisory firms can conduct internal reviews on their own or hire outside experts to audit their procedures. In either case, an official review needs to be done at least once a year. The review must address the adequacy of the firm's policies and procedures, and whether these policies and procedures are being effectively implemented. In other words, are the policies and procedures reasonably likely to prevent a violation of SEC rules? Or, is your firm's policy/procedure actually being followed by the investment advisory rep or supervisory staff?
We suggest continuous monitoring of a firm's compliance and supervisory policies/procedures and updating as needed. A best practice is for the firm to establish in advance a schedule of different areas that will receive review each month or quarter.
Finally, the SEC has also added the documentation of the reviews to the Books and Records requirements for investment advisors. Therefore, it is imperative that your firm keep the documentation of your reviews for the required 5 year time frame.
If you have questions about your firm's compliance policies and procedures, RIA Compliance Consultants can help. Please give us a call at your convenience.
Under Rule 206(4)-7 of the Investment Advisers Act, all SEC registered advisor firms are required to review their compliance and supervisory policies and procedures at least annually. In fact, the Rule states it is unlawful to conduct advisory business unless (1) the firm has established written compliance programs, (2) annually reviews the programs, and (3) has designated a CCO.
Investment advisory firms can conduct internal reviews on their own or hire outside experts to audit their procedures. In either case, an official review needs to be done at least once a year. The review must address the adequacy of the firm's policies and procedures, and whether these policies and procedures are being effectively implemented. In other words, are the policies and procedures reasonably likely to prevent a violation of SEC rules? Or, is your firm's policy/procedure actually being followed by the investment advisory rep or supervisory staff?
We suggest continuous monitoring of a firm's compliance and supervisory policies/procedures and updating as needed. A best practice is for the firm to establish in advance a schedule of different areas that will receive review each month or quarter.
Finally, the SEC has also added the documentation of the reviews to the Books and Records requirements for investment advisors. Therefore, it is imperative that your firm keep the documentation of your reviews for the required 5 year time frame.
If you have questions about your firm's compliance policies and procedures, RIA Compliance Consultants can help. Please give us a call at your convenience.
Labels: Compliance Program
posted by bhill at 4:15 PM
SEC Guidance Is Arriving for New CCOs
Are you a newly appointed Chief Compliance Officer of an SEC registered investment advisory firm, but not completely sure of the full breadth of your responsibility? If so, you definitely aren't alone.
Last fall, the SEC's Compliance Programs of Investment Companies and Investment Advisers Rule went into effect. Although Rule 206(4)-7 requires investment advisors (registered with the SEC) to appoint a Chief Compliance Officer, it doesn't enumerate the specific responsibilities of the CCO. Guidance from the rule is limited. It provides that the CCO administer the compliance policies and procedures of the firm and be competent and knowledgeable; and the position should also be given full responsibility and authority to develop and enforce appropriate policies and procedures and have a position of sufficient seniority and authority within the organization.
In recent months, the SEC has started to provide additional comments about the role and responsibilities of the CCO. For example, the Associate Director of the Office of Compliance Inspection and Examinations recently spoke on the subject before the Managed Funds Association. During the speech the Associate Director laid out 24 specific duties and functions that he believes all CCOs should perform or consider performing. He also discussed the new rule in more detail and provided direction regarding the selection of a CCO. RIA Compliance Consultants recommends that CCOs read the entire text of his comments. This attempt at clarification is welcomed news, and hopefully a sign of what we can expect in the future.
Last fall, the SEC's Compliance Programs of Investment Companies and Investment Advisers Rule went into effect. Although Rule 206(4)-7 requires investment advisors (registered with the SEC) to appoint a Chief Compliance Officer, it doesn't enumerate the specific responsibilities of the CCO. Guidance from the rule is limited. It provides that the CCO administer the compliance policies and procedures of the firm and be competent and knowledgeable; and the position should also be given full responsibility and authority to develop and enforce appropriate policies and procedures and have a position of sufficient seniority and authority within the organization.
In recent months, the SEC has started to provide additional comments about the role and responsibilities of the CCO. For example, the Associate Director of the Office of Compliance Inspection and Examinations recently spoke on the subject before the Managed Funds Association. During the speech the Associate Director laid out 24 specific duties and functions that he believes all CCOs should perform or consider performing. He also discussed the new rule in more detail and provided direction regarding the selection of a CCO. RIA Compliance Consultants recommends that CCOs read the entire text of his comments. This attempt at clarification is welcomed news, and hopefully a sign of what we can expect in the future.
Labels: Compliance Program
posted by bhill at 8:33 PM
