A Registration Investment Advisor (RIA) is required to have a compliance program that follows regulatory standards; this helps prevent common risks such as inadequate policies. A regulatory consulting company provides RIA compliance services, helping new firms develop their programs and operate ethically. Here is more information about compliance programs and what new RIAs need to know:
SEC and State Registration Requirements
An RIA registers with either a state securities regulator or the Securities and Exchange Commission (SEC). This is dependent on the amount of assets under management (AUM) for the company; firms that have under $100 million in AUM register at the state level. Other factors such as the type of business and client base also impact which regulator the firm will register with.
SEC registration requirements include developing a compliance manual and drafting the required policies. A regulatory consulting team can assist the firm throughout the registration process; this includes creating Disclosure Statements and Solicitors Agreements. Other RIA compliance services include developing and completing the different parts of Form ADV and licensing personnel such as Series 65. Investment Adviser Representative registration may also be required. These applications are submitted through the IARD system.
SEC has 45 days to approve the applications, but there may be follow-up questions. When firms complete all documentation accurately, they are able to avoid delays. A Chief Compliance Officer (CCO) is able to respond to SEC inquiries on behalf of the firm.
Policy and Practice Expectations
Having a deeper understanding of compliance policies and practice expectations makes it easier to run a compliance program. This prevents risks such as overgeneralized policies or not following the correct procedures. The firm should have a Business Continuity Policy and a Code of Ethics. A Business Continuity Plan helps RIAs prepare for possible interruptions, and a Code of Ethics promotes ethical decisions.
Requirements for different areas of operation include following fair standards for asset allocation, having policies to protect client information, and adhering to financial integrity standards to prevent money laundering. Client fees should follow standards of fairness. A RIA is able to choose whether to hire a full-time CCO or outsource one from a regulatory consulting company. A CCO monitors the Insider Trading Policy, and they provide training on compliance topics to internal teams.
Day-to-day Compliance
Adhering to compliance requirements includes making sure day-to-day practices are operating within the framework. Recordkeeping should follow transparent practices, and compliance manuals need to be maintained. A CCO helps with compliance program maintenance, creating a calendar to prevent the firm from missing relevant deadlines. They also help with filing documents on time, such as Form ADV. These require yearly amendments; if there are significant changes to the firm, an amended form needs to be filed. An experienced CCO submits an updated version of Form ADV Part 2 within the 120-day deadline. A CCO is also able to help with state notice registrations. Other regular compliance responsibilities include making sure all promotional and advertising materials are accurate with verifiable claims. The CCO reviews and approves these.
Annual Risk Assessment Process
SEC Rule 206(4)-7 requires a yearly assessment of the compliance program. These reviews are risk-based and customized to the RIA’s profile to provide specific evaluation. A regulatory consulting company is able to perform these reviews to see how the firm is following regulatory standards; they also identify potential areas of improvement. The process includes forming a review scope, addressing areas such as:
- Potential conflicts of interest
- Client asset protection
- Investment strategies
- Privacy policies
The review includes taking a sample of the books to test for compliance adherence and checking policies for potential gaps. Personnel reviews provide additional information about any operational problems, and exit interviews provide opportunities to discuss areas of improvement. A final report offers detailed information about what the examination showed.
Some companies also offer mock examinations, helping prepare the firm for official regulatory audits. This provides opportunities to resolve issues before examinations. A CCO is able to provide guidance with examinations; they communicate with regulators on the firm’s behalf.
Learn More About RIA Compliance Services
Learning more about compliance requirements can help RIAs protect their reputation; this also allows them to prevent financial penalties and regulatory consequences. An outsourced CCO is able to chair compliance committee meetings. To learn more about the available RIA compliance services, look for a regulatory consulting company today.
