In our series “Year-End Compliance Tips,” we are next focusing on investment advisor codes of ethics.
The SEC and many state securities regulators require investment advisor firms to create and implement a code of ethics. All SEC firms must require all employees to read and agree to abide by the firm’s original code of ethics and any amendments made to the code. RIA Compliance Consultants recommends requiring an annual acknowledgment of the code of ethics. In addition, advisor firms should also consider implementing an annual training program focused on the code of ethics. As quoted from Rule 204A-1 of the Advisors Act, an SEC advisor’s code of ethics must include, at a minimum:
(1) A standard (or standards) of business conduct that you require of your supervised persons, which standard must reflect your fiduciary obligations and those of your supervised persons;
(2) Provisions requiring your supervised persons to comply with applicable Federal securities laws;
(3) Provisions that require all of your access persons to report, and you to review, their personal securities transactions and holdings periodically as provided below;
(4) Provisions requiring supervised persons to report any violations of your code of ethics promptly to your chief compliance officer or, provided your chief compliance officer also receives reports of all violations, to other persons you designate in your code of ethics; and
(5) Provisions requiring you to provide each of your supervised persons with a copy of your code of ethics and any amendments, and requiring your supervised persons to provide you with a written acknowledgment or their receipt of the code and any amendments.
The code of ethics needs to be reviewed by the firm on an 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.
While many states do not have detailed requirements similar to that of the SEC, RIA Compliance Consultants recommends state firms follow the SEC parameters as a proactive measure.
If your firm has questions or concerns about the code of ethics requirements, please give us a call to discuss how we can help your firm meet its regulatory obligations.
Posted by Bryan Hill
Labels: Code of Ethics