Conducting an Annual Compliance Review

May 20, 2011

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It is essential for all investment advisors registered or required to be registered with the U.S. Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940 (“Advisers Act”) to understand that it shall be unlawful under Rule 206(4)-7 of the Advisers Act to provide investment advice unless the investment advisor has adopted and implemented written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder.  Rule 206(4)-7 also requires SEC registered investment advisors to review their policies and procedures no less than annually to ensure adequacy and effectiveness of the implementation of the written policies and procedures.    It is important to note that while Rule 206(4)-7 does not apply to most investment advisors that are registered with state securities authorities, many states have adopted similar requirements regarding written policies and procedures; it is essential for all investment advisors to be aware of the compliance requirements of its state in order to prevent regulatory violations.

An investment advisor’s annual compliance review should assess the effectiveness of its written policies and procedures.  When conducting an annual compliance review, at a minimum, investment advisors should take into consideration any compliance matters that may have arose during previous years, changes in the investment advisors business activities or procedures, and any changes to the Advisers Act or the rules thereunder that may have become effective since the investment advisor’s last review.  An investment advisor should determine those areas where new policies and procedures need to be developed or where existing policies and procedures need to be improved.

As part of an examination by a regulatory authority, examiners will expect to find such items as exception and management reports, findings from your review, any resulting corrective actions taken, and/or compliance checklists.  Once an investment advisor has completed its annual compliance review and identified the areas of concern or deficiency, it is equally as important that the investment advisor take appropriate corrective actions in a timely manner.  Examiners will review and assess the effectiveness and timeliness of any corrective actions taken by the investment advisor.  If an investment advisor indicates that it does not have any findings resulting from its annual compliance review, an examiner may be skeptical, which may then result in the examiner conducting additional review and testing to confirm the investment advisor’s lack of findings.

For more details regarding conducting an annual review of your investment advisor’s compliance program, register for the webinar, Conducting an Annual Compliance Review, being presented by RIA Compliance Consultants on June 16, 2011 at 12:00 pm CDT.  A fee of $59.95 will be charged for this webinar.  To register, simple click here.

RIA Compliance Consultants can help your investment advisor conduct its annual compliance review.  For more information on this or any of the other compliance support services provided by RIA Compliance Consultants, click here to schedule a time for one of our senior compliance consultants to call you to discuss your specific needs.

Posted by Bryan Hill
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