Top State Investment Adviser Exam Deficiencies

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.