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Top 2017 NASAA RIA Compliance Deficiencies: Books and Records

Posted by RIA in a Box

Nov 8, 2017 3:51:52 PM

2017 state investment adviser compliance deficencies: books and records

Last month, the North American Securities Administrators Association ("NASAA") released its 2017 Investment Adviser Coordinated Examinations Report. The biannual report is a must read for registered investment adviser ("RIA") firms. As RIA compliance consultants, we recommend that the Chief Compliance Officer ("CCO") of all investment advisory firms review the regulatory exam summary report to determine if any compliance changes need to be implemented at their firm.

In this week's installment of our break-down of the new 2017 report, we focus on NASAA's most common RIA regulatory compliance deficiency category: books and records. Of the 1,227 investment advisory firms examined in 2017, 64.6% of all firms examined with regulatory assets under management ("AUM") had at least one books and records-related regulatory deficiency. In total, there were 2,110 books and records-related deficiencies cited across all firms which were audited.In general, it would appear a firm that had at least one books and records-related deficiency was likely to have at least one other books and records related compliance issue.

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

Compared to the 2015 report on coordinate state examinations released by NASAA, books and records regulatory compliance deficiencies dropped from 74.8% of all firms examined in 2015 to 64.6% of all firms audited in 2017. Looking even further back at the results from the 2007 to 2015 biannual NASAA reports, books and records issues have commonly recorded an average above 40% of all firms examined in each study. The table below highlights the changes over the last 10 years of reports:

top ria books and records compliance deficiencies

In 2017, the top 5 books and records-related deficiencies were:

  1. Client suitability information: 9.00%
  2. Trial balances, financial statements: 8.53%
  3. Written agreements (IA-Client contracts): 8.01%
  4. General and auxiliary ledgers: 5.97%
  5. Disclosure Brochures: 3.98%

In 2015, the top 5 books and records-related deficiencies were:

  1. Client suitability information: 9.8%
  2. Order memorandum: 8.3%
  3. Missing written agreements: 8%
  4. Trail balances / financial statements: 6.6%
  5. Inadequate written supervisory procedures related to business continuity planning: 6.1%

It’s evident that RIA firms should continue to focus on having properly updated client suitability information on file as it has been and continues to be the most common books and records-related investment adviser compliance issue.  In addition, written agreements and trial balances / financial statements hold steady on the list of top books and records-related deficiencies.

Be sure to also check out our past blog post on the top investment adviser books and records compliance deficiencies from the 2015 NASAA report.

Download the Top RIA Compliance Deficiencies 2015 Infographic 

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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