Help with Ongoing RIA Compliance Requirements

Help with ongoing RIA compliance requirements. The Office of Compliance Inspections and Examinations (OCIE) of the Securities and Exchange Commission (SEC) has now published its examination priorities for 2020.  The themes for 2020 are similar to 2019 and are included here and below is the detail: 

  1. Retail Investors, Including Seniors and Those Saving for Retirement
  2. Market Infrastructure
  3. Information Security
  4. Focus Areas relating to Investment Advisors/Investment Companies/Broker-Dealers and Municipal Advisors
  5. Anti-Money Laundering
  6. Financial Technology (FinTech) and Innovation, including Digital Assets and Electronic Investment Advice
  7. FINRA and MSRB

Retail Investors, Including Seniors and Those Saving for Retirement -OCIE will focus examinations on the disclosure and calculation of fees, expenses, and other charges investors pay, and conflicts of interest.  They will assess whether registered investment advisors (RIAs) provide advice in the best interests of their clients and eliminate or at least expose through full and fair disclosure, all conflicts of interest which might include an RIA to render advice that is not disinterested.  After the June 30, 2020 compliance date for Regulation Best Interest and Form CRS, OCIE intends to assess implementation of the requirements of the new rule, including policies and procedures regarding conflicts disclosure and the content and delivery of Form CRS.

Market Infrastructure – OCIE will continue to examine entities that provide services critical to the proper functioning of capital markets. They will conduct examinations of firms which include, among others, clearing agencies, national securities exchanges, alternative trading systems and transfer agents, focusing on certain aspects of their operations and compliance with recently effective rules. 

Information Security– OCIE’s examination programs will prioritize cybersecurity and other information security risks with an emphasis on, among other things, proper configuration of network storage devices, information security governance, and policies and procedures related to retail trading information security.  OCIE will continue to focus and assess RIA’s protection of clients’ personal financial information.

Focus Areas Relating to Investment Advisors, Investment Companies, Broker-Dealers and Municipal Advisors – OCIE’s examination of RIAs will focus on never been examined advisors, including new RIAs and RIAs registered for several years and have yet to be examined.  Their exams will include RIAs advising retail investors as well as private funds.  Review of compliance programs of RIAs, including whether those programs and their policies and procedures are reasonably designed, implemented and maintained. OCIE has a particular interest in the accuracy and adequacy of disclosures provided by RIAs offering clients new types or emerging investment strategies, such as strategies focused on sustainable and responsible investing, which incorporate environmental, social and governance (ESG) criteria.  For additional information concerning investment companies, broker-dealers and municipal advisors, see the link provided above for the examination priorities for 2020.

Anti-Money Laundering Programs – Examiners will review for broker-dealer compliance with applicable anti-money laundering requirements, including whether firms are appropriately adapting their AML programs to address their regulatory obligations.

Financial Technology (FinTech) and Innovation, including Digital Assets and Electronic Investment Advice – OCIE will continue to examine SEC registered firms engaged in the digital asset space as well as RIAs that provide services to clients through automated investment tools and platforms, referred to as “robo-advisors.”

FINRA and MSRB – OCIE will continue its oversight of FINRA by focusing examinations on FINRA’s operations and regulatory programs and the quality of FINRA’s examinations of broker-dealers and municipal advisors. For all of the important details around these categories and more, click here for a complete copy of the 2020 National Exam Priorities. Contact us today if you need help with ongoing RIA compliance requirements.

Investment Compliance Services nh

Investment Compliance Services nh.  The Office of Compliance Inspections and Examination (OCIE) issued a Risk Alert in July 2019 after 50 examinations of RIA firms managing approximately $50 billion in assets for nearly 220,000 clients.  The majority of clients were retail clients.  The registered investment advisors who were identified for this examination was through a review of information about the investment advisor firm’s disciplinary events and legal actions involving supervised persons of the investment advisor.

The focus of this exam included the following areas:

  • Compliance programs and supervisory oversight practices.  Firms policy and procedures were reviewed to determine if they were reasonably designed to detect and prevent violations of the Advisers Act, especially previously disciplined individuals.
  • Disclosures.  The focus was on whether disclosures in marketing materials and documents was full and fair, included all material facts and were not misleading.
  • Conflicts of interest.  The regulators assessed whether the registered investment adviser identified, addressed, and fully disclosed all material conflicts of interest, especially conflicts dealing with compensation arrangement and account management.

This initiative identified a variety of deficiencies relating to RIA compliance issues, disclosure issues, including undisclosed conflicts of interest.  

To read the complete Risk Alert, click here.  

Registered Advisor Services helps RIA investment advisors create comprehensive compliance programs to avoid the types of deficiencies outlined within this Risk Alert.  Contact Registered Advisor Services for your Investment Compliance Services nh.

Investment Advisor policies and procedures

Investment Advisor policies and procedures.  Recently, the North American Securities Administrators Association (NASAA) published their examination overview.  They covered 1,078 investment advisor examinations during January to June 2019.  Of those examined, 292 investment advisors were examined by the state for the first time.  

The Facts!

70% of those registered investment advisor had one Investment Advisor Representative 

10% had two Investment Advisor Representatives  

63 investment advisor firms are affiliated with a broker dealer firm 

30 investment advisors advise a pooled investment vehicle  

214 investment advisors offer financial planning services

77 investment advisors acted as solicitors for other registered investment advisors

23 investment advisors pay solicitors for referrals

2019 Top 10 Deficiency Categories:

60% Books and Records;

50% Registration;

44% Contracts;

26% Cybersecurity;

21% Fees;

17% Brochure Delivery;

17% Financials;

17% Advertising;

17% Supervision;

15% Custody.

For a copy of the Full Report, click here! Registered Investment advisor firms should review their own internal policies and procedures and internal controls to confirm that their documents are current and appropriate for the size and scope of the firm. Registered Advisor Services is here to help, contact us today!

Experienced RIA Compliance Consultants nh

Experienced RIA Compliance Consultants nh.  On June 19, 2019 the Commonwealth of Massachusetts amended its state registered investment advisor disclosure regulations (950 MASS. CODE REGS. 12.205(8)) and is now requiring each investment advisers registered in Massachusetts to provide to clients and prospective clients a one-page, stand-alone Table of Fees for Services (“Fee Table”).  The Fee Table is to indicate the fees charged for services offered by your firm and to be consistent with what is checked off within Item 5 on the Form ADV Part 1A, Services and Type of Fees.  

Massachusetts will begin enforcing this new requirement as of January 1, 2020.

Amendments and Delivery Requirements:

The Fee Table will need to be updated within 30 days of any change to the information included within the document and an updated copy provided to your clients. Annually, you will be required to deliver a copy of the Fee Table to your clients when you deliver your Brochure, within 120 days of your firm’s fiscal year end.

Massachusetts has provided the format for the Fee Table and their specific instructions of the language to be consistent with what is reported within your Form ADV Part 1A.

If your RIA firm is state registered in Massachusetts, contact Registered Advisor Services today, experienced RIA compliance consultants nh  for assistance!

Investment Advisor Compliance Requirements

Investment Advisor Compliance Requirements.  On June 5ththe SEC approved four agenda items that encompassed the “Reg BI Package.”  These four items are Regulation Best Interest-Standard of Conduct for Broker-Dealers; Form CRS Relationship Summary; Standard of Conduct for Investment Advisors; and Interpretation of “Solely Incidental.”  

This rule impacts federally registered investment advisors.  It is unsure at this point if the individual states will adopt Regulation BI or their own interpretation of the rule. 

Below is a summary of each item of the “Reg BI Package”:

Regulation Best Interest-Standard of Conduct for Broker-Dealers

Regulation Best Interest, substantially enhances the broker-dealer standard of conduct beyond existing suitability obligations, requiring broker-dealers, among other things, to act in the best interest of their retail customers when making a recommendation, including not placing their financial or other interests ahead of the interest of the retail customer. The standard of conduct draws from key fiduciary principles and cannot be satisfied through disclosure alone.

Broker-dealers will now have to meet four “obligations”: Disclosure Obligation; Care Obligation; Conflict of Interest Obligation and a Compliance Obligation.

Form CRS-Client Relationship Summary

The Form CRS relationship summary will require investment advisors and broker-dealers to deliver a relationship summary to retail investors at the beginning of their relationship.  Firms will summarize information about services, fees and costs, conflicts of interest, standard of conduct, and whether the firm and its financial professionals have any disciplinary history. 

The relationship summary will have a standardized question-and-answer format to promote comparison by retail investors in a way that is different from existing disclosures.  The relationship summary will permit the use of disclosure so that retail investors can easily access additional information from the firm about these topics.  It will also highlight the SEC’s investor education website ( which offers the investing public educational information, including a series of educational videos designed to provide ordinary retail investors with some basic information about broker-dealers and investment advisors.

The relationship summary is to be two pages in length for investment advisors’ firms (four pages in length for dually registered broker-dealers and investment advisors).  The relationship summary will be a part of the Form ADV and will be filed on the IARD system as Form ADV Part 3. 

The relationship summary is to be delivered to retail investors “at or before the time the advisor enters into an investment advisory agreement.”  This includes oral agreements, as well.  The relationship summary is to be updated within 30 days whenever any information in the relationship summary becomes materially inaccurate.  You must then communicate any changes in the updated relationship summary to retail investors who are existing clients within 60 days after the updates are required to be made and without charge.  

There are annual delivery requirements as well, around opening new accounts that are different; recommending a roll-over of assets from a retirement account into a new or existing account or investment; and, recommending an investment advisory service or investment that does not necessarily involve the opening of a new account.  

The definition of Retail Investor as provided by the SEC is:  “A natural person, or the legal representative of such natural person, who seeks to receive or receives services primarily for personal, family or household purposes.” 

The compliance date for filing Form CRS is June 30, 2020.

Here is a link to the instructions for the Form CRS.  I encourage you to review these instructions to better understand what will be required within the Form CRS to meet your investment advisor compliance requirements.

SEC Investment Adviser Interpretations

Standard of Conduct for Investment Advisers

The Investment Advisor Interpretation (SEC IA Interpretation) reaffirms, interprets, clarifies, and provides guidance regarding the fiduciary duty derived from common law that an investment advisor owes to its clients under the Investment Advisers Act of 1940 (Advisers Act). The SEC IA Interpretation provides that this duty is principles-based and applies to the entire relationship between an investment advisor and the client. 

The SEC IA Interpretation also describes the underlying duties that constitute an investment adviser’s fiduciary duty: the Duty of Care and the Duty of Loyalty. It further breaks down the Duty of Careas follows: (i) a Duty to Provide Advice that is in the Best Interest of the Client; (ii) a Duty to Seek Best Execution; and (iii) a Duty to Provide Advice and Monitoring over the Course of the Relationship. The discussion of the “Duty to Provide Advice that is in the Best Interest of the Client” includes a subsection with a detailed discussion on the requirement for a “reasonable belief that advice is in the best interest of the client.”

Click here for the release.

Interpretation of “Solely Incidental”

The broker-dealer exclusion under the Advisers Act excludes from the definition of investment adviser, and thus from the Advisers Act, a broker or dealer whose performance of advisory services is solely incidental to the conduct of her or his business as a broker or dealer and who receives no special compensation for those services. The interpretation confirms and clarifies the Commission’s interpretation of the “solely incidental” prong of the broker-dealer exclusion of the Advisers Act. Specifically, the final interpretation states that a broker-dealer’s advice as to the value and characteristics of securities or as to the advisability of transacting in securities falls within the “solely incidental” prong of this exclusion if the advice is provided in connection with and is reasonably related to the broker-dealer’s primary business of effecting securities transactions.

Click here for the release.

My understanding is the SEC is considering FAQs on this new rule.  If so, I believe this will help provide the guidance for investment advisor compliance requirements with Regulation BI.

Ongoing RIA Compliance Requirements

Ongoing RIA Compliance Requirements.  The Office of Compliance Inspections and Examinations (“OCIE”) issued a risk alert on May 23rd concerning the security risks with storage of electronic customer information on network cloud service providers.  

The Summary of Examination Observations includes the following:

  • Misconfigured network storage solutions:  Registered Investment Advisors and Broker Dealers did not adequately configure the security setting on their network storage solution to protect against unauthorized access.
  • Inadequate oversight of vendor-provided network storage solutions:  Firms did not ensure that the security settings on vendor-provided network storage solutions were configured to coincide with the RIA or Broker Dealer’s standards.
  • Insufficient data classification policies and procedures. Firms policies and procedures did not identify the different types of data stored electronically by the firm and the appropriate controls for each type of data.

How to meet your Ongoing RIA Compliance Requirements?  

Review your security settings with your network storage solution to confirm the service is configured in accordance with your firm’s standards.  Review your RIA firm’s policy and procedures to ensure they cover data classification, vendor oversight and security features are being met by your cloud based service provider.  These steps will help your firm meet its requirements.

Investment Advisor Policy and Procedures

Investment Advisor Policy and Procedures.  On April 16, the Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert related to compliance issues with Regulation S-P as identified in recent examinations of SEC registered investment advisors and broker dealer firms.  

Regulation S-P requires firms to initially and annually, provide notice to customers that accurately reflects your firm’s privacy policy and practices regarding safeguarding and use of your customers private non-public personal information.  An opt-out notice is also required that explains the customer’s right to opt out of some disclosures of non-public personal information to nonaffiliated third parties.

The Risk Alert outlines these common deficiencies or weaknesses:  

  • Failure to provide Initial Privacy Notice, Annual Privacy Notice and Opt-Out Notices;
  • Inadequate Privacy Notices not reflecting the firm’s current policies and procedures;
  • Privacy Notices that did not provide customers with an opt-out provision;
  • No written investment advisor policy and procedures to address the administrative, technical and physical safeguards in place to protect customer information;
  • Inadequate policies that did not ensure the security and confidentiality of customer records and information; protect against anticipated threats or hazards to the security or integrity of customer records and information; and, protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to customers.

OCIE strongly recommends that RIA firms review and strengthen their data privacy policies, update their data privacy notification and ensure adherence to SEC data privacy regulations.

Recommended actions:

  • Confirm initial and annual Privacy Notices have been provided to your customers;
  • Review and update (as needed) your Privacy Notice and procedures and Opt-Out notice;
  • Review and update (as needed) your investment advisor policy and procedures for how you safeguard customer’s records and information;
  • Provide trading to all staff regarding data privacy regulations and your investment advisor policy and procedures. 

Contact Registered Advisor Services today for assistance with your investment advisor policy and procedures!

RIA Compliance Requirements

RIA Compliance Requirements.  Now that most firms have completed their Annual Amendment filing this is the perfect time to review your RIA compliance requirements.  One of those requirements is to perform a thorough review of your firm’s RIA policy and procedures manual to confirm if your firm has had a change to how it operates, added new relationships that may create a conflict of interest or more generally to confirm that the procedures your RIA firm has in place are still appropriate for the size and scope of your firm.

Recently, I was doing research on the SEC website and came across a series of questions that the SEC published for investment advisor firms to consider when reviewing their policy and procedures.  It is a terrific list of questions but more importantly provides guidance to firms on what to think about in terms of their testing requirements.  

Here is the link to:  Questions to ask from the SEC when reviewing your policies and procedures-see attachment.  

RIA Compliance Advisor

RIA Compliance Advisor. Now that we are better than half way through the first quarter of 2019, many registered investment advisor (RIA) firms are reviewing their Form ADV Part 1 Annual Amendment. This review is in preparation of updating several sections within that document and submitting it by the deadline of March 31, 2019. These are RIA firms that have a December fiscal year end.

Last year, several new questions appeared on the Form ADV Part 1 Annual Amendment that are worth repeating here.  As a reminder:  Section 5, Information about your Advisory Business – Employees, Clients and Compensation.  Specifically, Question 5K (1) Separately Managed Account Clients.  For purposes of the Form ADV, “Separately Managed Account clients” are generally defined as all of your clients who investment advisors provide investment advice to EXCEPT, private funds, business development company and mutual funds.  Outside of private funds, business development company and mutual funds, all other types of ‘clients’ come under this term.  (i.e., individuals, High Net Worth client, corporations, pension plans, etc.).

The next question that is Question 5K (4). This is the question that is asking the advisor to provide the name of the custodian(s) that holds 10% or more of your client’s regulatory assets under management.  The reporting on the corresponding schedule for Question 5K (4) is to include the name of the custodian/address, CRD/SEC number and the corresponding assets held by that custodian(s).

If you need assistance with your Form ADV Part 1 Annual Amendment filing or any other investment advisor compliance needs, contact Registered Advisor Services, your RIA Compliance Advisor, today for a free consultation!