Every two years state securities examiners provide sample data from their investment adviser examinations to NASAA. Using that data NASAA recently released a report on common Investment Adviser (“IA”) deficiencies.
The data shows a 30% decrease in deficiencies from the 2013 report but the following are still the top 5 common areas of deficiency:
- Top books and records deficiencies: not maintaining client suitability documentation and order memorandum.
- Top contracts deficiencies: fees not explained and not having all contracts in writing.
- Top registration deficiencies: Form ADV inconsistencies between Part 1 and Part 2 and the timely filing of amendments.
- Top fee deficiencies: fee charged does not match contract or ADV and unreasonable or excessive charges.
- Top custody deficiencies: improper client invoice for direct fee deduction and dual invoicing of client and custodian for direct fee deduction.
Some additional areas with deficiency were advertising, privacy, fees, and compliance/supervision. The following is a list of “best practices” recommended by NASAA:
- Prepare and maintain all required records, including financial records. Back-up electronic data and protect records.
- Prepare and maintain client profiles or other client suitability info.
- Review and update all contracts. Make sure all fees are clearly noted and adequately explained in the contract.
- Review and revise Form ADV and disclosure brochure annually to reflect current and accurate information. File amendments in a timely manner.
- Prepare and distribute a privacy policy initially and annually.
- Calculate and document fees correctly in accordance with contracts and ADV.
- Keep accurate financials. File timely with the jurisdiction. Maintain surety bond if required.
- Implement appropriate custody safeguards, paying attention to direct fee deduction if applicable.
- Review all advertisements, including website and performance advertising, for accuracy.
- Provide disclosure brochure to clients initially, then provide updates and offers to deliver afterwards as required.
- Prepare a written compliance and supervisory procedures manual relevant to the type of business to include a business continuity plan.
- Keep accurate financials. File timely with the jurisdiction. Maintain surety bond if required.
- Review solicitor agreements, disclosures, and delivery procedures.
To see the full report click here.
If you find yourself overwhelmed or out of time give us a call. We are here to help keep you compliant while allowing you to focus on growing your business.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes.