Form ADV Deficiencies Most Commonly Cited During State Examinations

January 07, 2008

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According to a study conducted by the North American Securities Administrators Association (NASAA) analyzing state-registered investment adviser regulatory examinations, the top deficiencies cited during those examinations were (1) inconsistencies between Form ADV Part 1 and Form ADV Part II; (2) failing to amend Form ADV in a timely manner; and (3) failing to provide or offer a copy of the disclosure document to clients annually. This information was released by NASAA on October 15, 2007 after the completion of their study of 418 examinations conducted from January 1, 2007 through May 31, 2007. The examinations were conducted by 43 state and provincial securities examiners.

As cited directly from the NASAA press release, the selected state regulatory examinations also found:

  • 198 advisers had 318 unethical business practice deficiencies, including contract deficiencies, unsuitable recommendations, excessive fees, and misrepresenting qualifications, services, or fees.
  • 189 advisers had 384 deficiencies in the area of preparing and maintaining current and accurate books and records. Not maintaining suitability data and financials were noted as the top two deficiencies in this area.
  • 152 advisers had 174 supervisory/compliance deficiencies. The most common deficiency was failure to have any written supervisory/compliance procedures.
  • 115 advisers had 142 privacy deficiencies. The most common were failure to create a privacy policy and failure to provide privacy notices initially and annually.

RIA Compliance Consultants, Inc. (RCC) commends NASAA for compiling this information and releasing it to the public. RCC believes state registered investment advisers must learn from these findings and institute controls and procedures within their own firm to avoid making the same errors. We invite you to read the entire press release and full report at NASAA’s Newsroom.

RCC is focused on helping registered investment adviser firms, both federally and state registered, navigate the regulatory maze. We provide services that can help state registered investment advisers avoid the deficiencies commonly cited by state securities regulators. These services include Form ADV drafting, compliance manual drafting, sample privacy policies, and sample disclosure document annual offer letters. To find out more about our services, please give us a call.

Posted by Bryan Hill
Labels: Form ADV