RIA Compliance and Practice Management Blog

SEC Outlines the RIA National Exam Program for Never Before Examined Advisers

Posted by RIA in a Box

Feb 24, 2014 9:00:00 AM

Late last week, the SEC began sending this letter to SEC-registered investment advisory firms that have not previously been examined by the agency which outlines the National Exam Program (NEP). The letter is part of an improved effort by the SEC staff to provide more communications and regulatory compliance guidance to registered investment adviser (RIA) firms. The SEC also notes in this communication that not all RIA firms that receive the letter will be chosen for examination. However, the letter does state that an emphasis will be placed on RIA firms that have been registered for three or more years and have not yet gone through an SEC regulatory audit.

The SEC staff further notes that this "Never-Before Examined Initiative" includes two types of SEC RIA examinations:

  1. Risk-Assessment: a more high-level review of the advisory firm
  2. Focused Reviews: a more encompassing review of 1 or more "high-risk areas"

In the letter, the SEC staff describes the "high-risks areas" of an RIA firm to be:

  • Adoption and implementation of a compliance program including a qualified Chief Compliance Officer (CCO) being properly empowered to administer the program
  • Conflicts of interest properly disclosed on all filings and disclosure documents
  • Marketing not being false, misleading, or deceptive in any way
  • Portfolios being managed in the best interests of clients
  • RIA Firms with custody taking the proper protective measures

As RIA compliance consultants, we strongly recommend that the principals and Chief Compliance Officer of all investment advisory firms registered with the SEC, regardless if the firm has been examined before or not, review the contents of this SEC staff letter in detail. The SEC has made a stated goal to increase the frequency of RIA regulatory audits and all SEC-registered RIAs should review their firm's compliance policies and procedures to ensure that they are properly prepared for an SEC examination.

Download Our Free How to Prepare for an RIA Regulatory Exam Checklist


Topics: 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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