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Growth & Supervision

Thursday, August 22, 2019

One perk of being a smaller investment firm is not having to stress over the supervision of multiple registered investment adviser representatives (IARs). However, with growth comes increased responsibility, especially when you get to the point of bringing on additional IARs. Like many industries, adding new people to the company brings on multiple challenges, and for Advisors, supervision needs to take priority.

With Growth, Comes Compliance

Many advisers that grow significantly over a relatively short time frame often find the transition difficult. Unfortunately, compliance is an area that has a tendency to fall by the wayside during rapid growth. Once an Adviser grows to the point where they feel it necessary to bring on one or more IARs, they should prioritize the assignment of a qualified individual to be the Chief Compliance Officer (CCO).

Upon the assignment of the CCO, there should immediately be an amendment to the Adviser’s written supervisory procedures to name the CCO and address how the CCO will supervise the IARs. Additionally, those amended procedures should be distributed to all IARs, and documentation maintained providing evidence they received and read the procedures.

How serious regulators are about an adviser’s supervisory obligations and the $40,000 cost to one firm.

With Compliance, Comes Regulators

One area in which regulators tend to focus on during an audit is the supervision of an IAR and their management of client accounts. That understood, it is vital for the Adviser to ensure written procedures are followed regarding:

  • The opening of new accounts
  • The collection and maintenance of the client suitability and risk information
  • The continuous and ongoing review of an IAR’s management of client accounts
  • The Adviser’s disciplinary policies when an IAR is not in compliance

Regardless of qualifications and perceived competence of IARs, the Adviser and named CCO are required to monitor their activities.  The CCO is obligated by statute and the Adviser by fiduciary duty to clients; both which should reflect in the Adviser’s written policies and procedures. 

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.