RIA Compliance and Practice Management Blog

2022’s top RIA compliance and RIA operations blogs from RIA in a Box

Posted by RIA in a Box

Jan 12, 2023 2:38:37 PM

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In 2022, RIA in a Box provided our audience with registered investment adviser (RIA) operation, RIA technology and RIA compliance blogs which covered topics like Securities and Exchange Commission (SEC) proposed rules and risk alerts, investment adviser representative (IAR) continuing education (CE) requirements, types of audits and more. In this blog, we’ll recap the highlights from the past year, providing you with our top ten RIA blogs from 2022.

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Top RIA compliance blogs from 2022

  1. A review of the top 2021 SEC RIA Risk Alerts (Jan. 13, 2022)

This blog covered the most impactful SEC risk alerts for RIAs in 2021. Given the SEC’s use of risk alerts to help guide the industry and highlight areas of deficiencies noted throughout examinations, RIAs should use these alerts as checkpoints for their own regulatory compliance program, ensuring their RIA firm remains compliant with new and existing SEC regulations. Top risk alerts from 2021 included:

  • SEC issues RIA Risk Alert on digital asset securities (April 2021).
  • SEC issues RIA Risk Alert for environmental, social and governance (ESG) Investments (April 2021).
  • SEC releases investment adviser Risk Alert on wrap fee programs (July 2021).
  • SEC issues RIA Risk Alert for online investment advisers (November 2021).
  • SEC issues investment adviser Risk Alert for fee calculations (November 2021).
  • SEC issues statement for RIA firms on Form CRS (December 2021).
  1. The three types of audits an RIA firm should know about (Jan. 26, 2022)

In this blog we covered the three different types of audits an RIA firm could face. Whether your firm is regulated by the SEC or by an individual state or states, these types of audits can occur at any time and your firm should be prepared to cooperate with the regulatory body and its requests.

  • Routine inspections: Periodic, routine examinations, which are conducted to determine if investment advisory firms have the appropriate systems and controls in place in accordance with the current rules and regulations.
  • For cause inspections: Occur as a result of particular developments such as a client complaint or internal inquiry. These are typically unannounced examinations.
  • Sweep examinations: conducted to gather information on the RIA firm's practice. The examiners typically focus on specific areas, such as advertising, custody, soft dollar arrangements, etc. These are also often surprise examinations.
  1. SEC rule proposal for cybersecurity risk management (Feb. 16, 2022)

On Feb. 9, 2022, the SEC proposed regulations to help decrease the risk of cybersecurity incidents and the related impact on clients. Included in the proposal are new rules and amendments impacts reporting requirements, recordkeeping and more. The SEC’s fact sheet noted specific highlights of the proposal including:

  • Require advisers and funds to adopt and implement written policies and procedures that are reasonably designed to address cybersecurity risks.
  • Require advisers to report significant cybersecurity incidents to the Commission on proposed Form ADV-C.
  • Enhance adviser and fund disclosures related to cybersecurity risks and incidents.
  • Require advisers and funds to maintain, make and retain certain cybersecurity-related books and records.
  1. 2022 IAR continuing education compliance requirements (Mar. 16, 2022)

Adopted Nov. 24, 2020 and effective as of 2022, the North American Securities Administration Association (NASAA) IAR CE requirements dictate IARs must complete 12 credit hours of IAR CE annually. This included six IAR Regulatory and Ethics Content credit hours and six IAR Products and Practice credit hours. Currently, Maryland, Mississippi and Vermont have adopted the rule, which means IARs within those states must complete their credit hours by Dec. 31, 2022. For IARs in states which newly adopted the rule in 2022, the effective date will be Jan. 1, 2023.

  1. The SEC examination priorities for 2022 (Apr. 5, 2022)

The SEC released its 2022 examination priorities on Mar. 29, 2022. Priorities for the year included private funds, ERG investing, standards of conduct, information security and data resiliency and emerging technologies and crypto-assets. In addition to these focus areas, the SEC highlighted additional areas specific to RIAS for 2022, which included disclosures and other issues related to fees and expenses, in addition to the London Inter-Bank Offered Rate (LIBOR) transition and associated impact.

  1. What RIAs must know to comply with the Custody Rule (Apr. 21, 2022)

This blog discusses the definitions, requirements and common deficiencies related to the custody rule for RIA firms. While the rulings are similar between the SEC and states, RIAs must have a thorough knowledge of the requirements placed on their firm but the relevant regulatory body. The SEC requirements include:

  • Disclosure on Form ADV documents/notice to administrator (NASAA model rule).
  • Assets maintained at a qualified custodian.
  • Notice to clients.
  • Account statements to clients.
  • Statements from the custodian at least quarterly.
  • Pooled investments statements for each investor.
  • Independent verification (Surprise Examination).
  • Engage services of independent CPA.
  • CPA will have reporting requirements on Form ADV.
  • First exam must occur within 6 months, then annually thereafter.
  • Form ADV-E.

Common deficiencies noted by the SEC include RIAs obtaining client account passwords or having power of attorney over a client’s accounts.

  1. SEC releases risk alert on investment adviser Marketing Rule (Sept. 21, 2022)

The SEC’s new Marketing Rule, which went into effect on Nov. 4, 2022, created new opportunity and risk for investment advisers. As such, the SEC released a risk alert highlighting areas of potential concern for upcoming examinations. The division noted, RIA firms should pay specific attention to:

  • Policies and procedures.
  • Substantiation requirement.
  • Performance advertising requirements.
  • Books and records. 
  1. SEC addresses investment advisers on conflicts of interest (Aug. 10, 2022)

In a staff bulletin put out on Aug. 3, 2022, the SEC provided both investment advisers and broker-dealers with advice on identifying and managing conflicts of interest. The bulletin included non-exhaustive steps an RIA can take to identify conflicts of interest within their firm and clarity around common misconceptions with disclosures related to conflicts of interest. RIAs are advised to establish clear policies and procedures customized to the specific business practices of your firm and provide full and fair disclosures for any and all conflicts of interest.

The SEC reminded firms it is their obligation to continually act in the client’s best interest.

Top RIA operations blogs from 2022

  1. The dos and don’ts of billing practices for RIAs (May 24, 2022)

The SEC’s November 2021 risk alert highlighted common deficiencies noted with RIA billing practices which included inaccurate advisory fee calculations, false/misleading/omitted disclosures, missing/inadequate policies and procedures and inaccurate financial statements. To avoid these deficiencies and optimize your billing practices, we recommend:

  • Adopting and implementing policies and procedures which address supervision, calculation, review and billing of advisory fees.
  • Conducting thorough reviews.
  • Implementing adequate record keeping practices.
  • Investing in automated client fee billing technology.
  • Creating a standard client fee schedule.
  1. Transitioning from an exempt reporting adviser to a registered investment adviser (Jan. 20, 2022)

As an exempt reporting adviser (ERA), you are not required to register with the SEC or state regulator, however you are still required to pay fees and report public information. Why? The exemptions which allow for ERA status are the Private Fund Adviser Exemption and the Venture Capital Fund Adviser Exemption. In the case their either the exemptions come inapplicable or the ERA reports $150 million or more in private fund accounts under management (AUM) or agrees to provide service to a non-private fund client, the ERA must then file as an RIA. In order to work as an RIA, the former ERA firm will need to apply for registration either with the SEC or the state regulator.

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RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

Topics: RIA Operations, RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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