Investment Advisors Should Prepare for Increased Regulatory Examinations

March 21, 2012

Reading time : 2 minutes

By now, registered investment advisors affected by the changes to Rule 203A-5 under the Investment Advisers Act of 1940 (“Rule 203A-5”), mid-sized investment advisor firms (firms with assets under management between $25 million and $100 million), should have begun the process of switching from registration with the U.S. Securities and Exchange Commission (“SEC”) to state registration.  Mid-sized advisor firms making the switch must keep in mind that filing the Form ADV Part 1 amendment and submitting an application for registration with the appropriate state regulatory agencies is just the first step in the process of making the switch from SEC to state registration.  A registered investment advisor must familiarize itself with the regulatory requirements of the SEC or state securities regulators, as applicable, and make sure that appropriate procedures are in place for complying with these requirements.  For a mid-sized advisor this will mean reviewing and making sure that it is complying with the appropriate state rules and regulations versus those of the SEC.

One of the anticipated outcomes resulting from the changes to Rule 203A-5 that will affect all SEC and state registered investment advisors is more frequent regulatory exams.  As part of a regulatory exam, an SEC investment advisor firm will be obligated to produce required books and record outlined under Rule 204-2 of the Investment Advisers Act of 1940 (“Rule 204-2”). Most state securities regulators impose books and records requirements similar to the SEC. However, each registered investment advisor will need to make sure that it understands the specific requirements of the investment advisor’s governing regulator.  Recordkeeping violations continue to remain one of the top regulatory exam deficiencies among both SEC and state regulatory examinations.

If your investment advisor would like more information and guidance on maintaining the appropriate books and records for your registered investment advisor, join RIA Compliance Consultants for our upcoming webinar, “Maintaining Investment Adviser Books & Records,” hosted April 12, 2012, at 12:00pm CDT. Our consultants will not simply review Rule 204-2, but instead will provide an overview of the files, documents and reports a regulator may request during an examination of an investment advisor. Our consultants will also discuss some of the common investment advisor deficiencies relating to maintaining appropriate books and records. To register for this event, click here.

Posted by Bryan Hill
Labels: Books Records, Regulatory Inspections, SEC, SEC Inspection, Switch from SEC to State, Webinar