In 2021, we published over 100 blog posts on a variety of registered investment adviser ("RIA") practice management and regulatory compliance topics. Our most popular posts relate to practice management and regulatory topics, including the Department of Labor (DOL) prohibited transaction exemption, investment adviser representative continuing education requirements, the new Securities and Exchange Commission (SEC) Marketing Rule, and Form ADV filings. Over 2,200 RIA firms rely on us not only for regulatory compliance software and consulting support, but for guidance on how to best grow and scale an advisory firm.
Here are our top 10 practice management blog posts from 2021 highlighting some of the topics we frequently discuss with our clients:
- New DOL Prohibited Transaction Exemption May Impact RIA Firms Advising on IRA Rollovers (February 2021)
The Department of Labor (“DOL”) published a final prohibited transaction exemption titled “Improving Investment Advice for Workers & Retirees” in December of 2020, with a statement released in February 2021 noting that the exemption “will go into effect as scheduled on Feb. 16, 2021, with an extended enforcement policy originally until December 21, 2021. The enforcement policy has since been extended through January 31, 2022. Therefore, it's possible that RIA firms providing fiduciary investment advice regarding IRA rollovers may not need to meet the full requirements of the new exemption if the firm is complying with the Impartial Conduct Standards.
While this post was not intended to provide a full overview of the DOL’s new stance on investment advice regarding rollovers, it was worth taking stock of certain actions that may comprise fiduciary investment advice. The blog post discusses two potential go-forward IRA rollover options for RIA firms, what RIA firms can consider doing in the near term, and the impartial conduct standards. The post wrapped up with 5 checklist items for RIA firms who will continue to provide rollover advice to be prepared to meet the transition period requirements and to be in full compliance with the exemption.
Recordkeeping requirements for RIA firms are set at a high bar. This blog post highlights the major categories of records required for RIAs to maintain, and the characteristics of each. The Securities and Exchange Commission’s (“SEC”) Rule 204-2 requires true, accurate and current records that are preserved in their original state and organized for easy retrieval.
The following twelve categories are covered; 1) Records Pertaining to Business and Financial Accounts, 2) Records Pertaining to Investment Advice and Transactions in Client Accounts, 3) Records Pertaining to Client Communications and Recommendations, 4) Records that Document Your Authority to Conduct Business in Client Accounts, 5) Records Pertaining to Advertising and Performance Records, 6) Records Pertaining to the Code of Ethics Rule, 7) Records Pertaining to Registration and Client Disclosure Documents, 8) Records Pertaining to Solicitor Arrangements, 9) Records Pertaining to Policies and Procedures Adopted and Implemented Under Compliance Program Rule, 10) Records Pertaining to Political Contributions, 11) Records Pertaining to Custody of Client Assets and, 12) Records Pertaining to Proxy Voting on Behalf of Clients. To learn specific characteristics of each recordkeeping facet, read the original blog post linked above.
This blog post provided a brief update on the status of the rule Marketing Rule. On December 22, 2020, the SEC finalized changes to the Investment Advisers Act of 1940 to adopt a modernized RIA marketing rule. This new rule creates a single rule to replace the Advertising (Rule 206(4)-1) and Cash Solicitation (Rule 206(4)-3) rules. New related amendments to the Books and Records Rule (Rule 204-2) and Form ADV were also finalized. The Form ADV now requires RIA firms to provide additional information related to their marketing practices to facilitate the SEC’s examination and enforcement capabilities. The post discusses the rule and gives additional insight on how a state registered or SEC registered firm should prepare to comply with the Marketing Rule. The rule was put into effect on May 4, 2021, and has a compliance deadline of November 4, 2022.
In this post, we provided an overview of how to stay compliant with RIA compliance archiving requirements. To stay compliant with archiving email, text, social media posts, or any other communication your RIA firm sends that can be received by a client or prospective client, a firm must follow all aspects of Rule 204-2.
Archiving requirements state that every investment adviser registered with the SEC must keep true, accurate, and current books and records about its business activities. Those activities include the above-mentioned forms of communications. If you missed this post in 2021, we covered what RIA firms need to do to stay compliant with archiving requirements, seven compliance archiving best practices for RIA firms, and what not to do when archiving communications.
- An Overview of the DOL's Fiduciary Rule FAQ Guidance (April 2021)
On April 13, 2021, the DOL released additional guidance to the “Improving Investment Advice for Workers & Retirees” exemption in the form of a FAQs sheet. Our earlier blog post published in February 2021 on the DOL exemption overviewed the exemption as it relates to both SEC and state registered investment advisor firms. In this post, we highlighted the four sections discussed in the release. The FAQ sheet is comprised of four sections: 1) background, 2) compliance dates, 3) definition of fiduciary investment advice, and 4) compliance with PTE 2020-02.
- Should You Register Your new RIA with the State or the SEC? (February 2021)
In this post, we answered the question of where to register your RIA firm - with the state(s) or the SEC. Where you register depends on more than a few factors. The most common is your firm's regulatory assets under management ("AUM")—specifically, firms are generally sorted based on whether they fall above or below the $100 million AUM mark. If your RIA firm manages less than $100 million, you generally will register with the relevant state(s), not the SEC. While there are some exceptions, in general, investment advisory firms who start an RIA firm with or expect to reach $100 million or greater in regulatory AUM within 120 days of registration should register with the SEC as an RIA. The post gives more specifics on how to identify relevant states to register in, exceptions to these general guidelines, and additional nuances.
This blog post looked at the five parts of the Form ADV and what is included in each section: the Form ADV Part 1A, Part 1B, Part 2A, Part 2B and Part 3 (a.k.a., Form CRS). Read the original post for specifics on the required components of this expansive, detailed document. The following is a brief explanation of each section needed in the Form ADV.
The Form ADV Part 1 is the online component of Form ADV. It primarily discloses information about the firm, whereas individual information is primarily disclosed in the Form U4. Part 1A is required whether you’re registering with the state or the SEC. Form ADV Part 1B is only required if you are registering with state authorities, not the SEC. If you are filing online and do not need to fill out Part 1B. Form ADV Part 2A requires you to write a narrative brochure where you’ll lay out information about your firm’s services, fees, conflicts, and personnel. The instructions require 18 disclosure items (19 for state-registered firms), which must be included in the brochure. Advisors must inform clients annually of any material changes made to this document. Form ADV Part 2B (a.k.a., the “brochure supplement”) contains required information about the individuals providing financial advice at your firm. It should be consistent with Form U4 in all material respects. Form ADV Part 3 better known as “Form CRS,” was added in the spring of 2020 for firms registered with the SEC that serve retail investors. In short, the Form CRS is a non-technical document, written in plain language and intended to be easily understood by clients and prospective clients.
- What RIAs Need to Know About Email Archiving (June 2021)
In this post we discussed why it is necessary for RIAs to archive emails. Email archiving is the process of capturing, storing, and properly maintaining records of your email communications and associated attachments on a long-term basis. This process keeps all content unchanged, helps to prevent data loss and serves as record documentation. All individuals at your RIA firm that send and receive emails are held to the regulatory requirements related to archiving.
Per SEC Rule 204-2, client-facing communications, including emails must be archived. In addition to ensuring that your firm is compliant with the books and records requirements for investment advisers, archiving emails helps a firm manage data storage improving server speed. Lastly the benefits of boosted investment adviser productivity and keeping records up-to-date and organized added to this list of reasons email archiving is necessary when communicating with both clients and colleagues.
This post discussed progress updates on the continuing education rule and requirements for investment adviser representatives ("IARs"). The North American Securities Administrators Association (“NASAA”) adopted a new investment adviser continuing education ("CE") model rule in November 2020. In 2022, IARs in the states which adopt the new model rule will need to complete 12 continuing education credits per year to maintain their IAR registration. IARs must comply with the continuing education requirements adopted by the state or securities regulator(s) in which the IAR is registered.
RIA firms can prepare by implementing procedures to ensure the IARs at their firms are informed of the requirements per each IAR's jurisdiction and that their courses are completed in a timely manner. Failure to complete the 12 CE credits will result in the IAR being listed as “CE Inactive” and unable to register or renew IAR registration.
The communications your RIA firm sends, including but not limited to social media posts, advertisements, and client facing documents need to be filed and archived appropriately. This post discussed five tips to help you avoid common pitfalls while setting up the right archiving system for your firm; 1) have an automated solution that archives items based on time limits set by you, as well as backing up data consistently, 2) have the proper backup process in place for your system to run smoothly, 3) make sure to schedule time to test the success of your system, perhaps on a monthly or quarterly basis, 4) make sure your policies for archiving are reviewed frequently, especially during your annual review process and, 5) protect and secure the backup data locations.