RIA Compliance and Practice Management Blog

Top 2015 NASAA RIA Compliance Deficiencies: Supervision

Posted by RIA in a Box

May 23, 2016 3:56:46 PM


Coordinated state exams conducted by members of the North American Securities Administration Association (NASAA) for 2015 uncovered the top registered investment adviser (RIA) compliance deficiencies across 20 categories. Most recently, we discussed deficiencies in regards to brochure delivery.

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In this week's installment, we cover another common RIA compliance deficiency category: supervision. The latest 2015 NASAA report shows that of the 1,170 investment advisory firms examined in 2015, 16.0% of all firms with regulatory assets under management (AUM) examined had at least one supervision-related regulatory deficiency. This figure has slightly decreased compared to the 16.7% figure reported in the 2013 report and has significantly decreased compared the 30.2% reported in the 2011 NASAA investment adviser examination report.

RIA compliance software for employee supervision compliance responsibilities

According to the 2015 report, around 19% of investment advisory firms with AUM less than $30 million had at least one such deficiency. This compares to roughly 17% of RIA firms with an AUM of greater than $30 million that had at least one such deficiency. Also notable, about 19% of firms with only one investment adviser representative (IAR) had at least one supervision-related deficiency, and around 18% of firms with more than one IAR had at least one such deficiency.

The Chief Compliance Officer (CCO) of every RIA firm needs to be aware of the top supervision-related compliance deficiencies. In 2015, the top issues were:

  1. Failure to have procedures to prevent the misuse of material nonpublic information (38.9%)
  2. Failure to periodically assess and update compliance/supervisory program (31.0%)
  3. Failure to follow compliance/supervisory procedures (27.4%)

In 2013, the top issues were:

  1. Failure to periodically assess and update (29.6%)
  2. Failure to follow procedures (29.1%)
  3. No procedures to prevent misuse of material nonpublic information (8.5%)
  4. Failure to avoid or mitigate conflicts of interest (3.7%)

In addition, securities regulators have previously highlighted personal trading supervision and remote location supervision as other common problem areas. 

An important first supervision-related step for all investment advisory firms, regardless of size, is to ensure that the firm has a written compliance and supervision procedures manual that is not only specific to the firm, but also regularly reviewed and updated. However, simply having a manual is not enough, especially as firms grow and expand across multiple branch offices, it becomes vitally important that the firm have the proper procedures and systems in place to ensure that all firm staff members are properly supervised. 

Our MyRIACompliance® online RIA compliance software offers firms automated electronic supervision capabilities. The platform provides customized login access to the CCO and each individual employee of the firm. The system also assists with compliance supervision requirements by creating a detailed electronic compliance log that serves as a tool to properly document that all relevant policies and procedures are being followed across the firm. As RIA compliance consultants, we cannot understate the importance of keeping the proper books and records to demonstrate supervision.

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Topics: RIA Operations, RIA Compliance, RIA Technology

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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