RIA Compliance and Practice Management Blog

Top 2017 NASAA RIA Compliance Deficiencies: Financials

Posted by RIA in a Box

Dec 20, 2017 11:55:06 AM

2017 state investment adviser compliance deficencies: financials

In October of this year, 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 one of NASAA's most common RIA regulatory compliance deficiency categories: financials. Of the 1,227 investment advisory firms examined in 2017, 20.8% of all firms examined with regulatory assets under management ("AUM") had at least one financials-related regulatory deficiency. In total, there were 232 financials-related deficiencies cited across all firms which were audited.

Download the SEC 2017 RIA Top 10 Exam Priorities Checklist

Compared to 2015, the frequency of financials-related deficiencies has dramatically increased. Since 2007, financials-related deficiencies have steadily gone up and down, and 2017 is no exception. The table below highlights the changes over the last 10 years of reports:

Frequency of RIA financials-related regulatory compliance issues

In 2017, the top 5 financials-related deficiencies were:

  1. Other issues (not in accordance to GAAP, timely posting to financial records, timely filing of financials, etc.) (41.4%)
  2. Inadequate net worth (for discretion) (18.5%)
  3. Commingling investment adviser records with outside business or personal accounts (9.1%)
  4. Inadequate net worth (for custody) (7.8%)
  5. Inadequate net worth (normal) (7.8%)

In 2015, the top 5 financials-related deficiencies were:

  1. Inadequate net worth (for discretion) (34.9%)
  2. Commingling investment adviser records with outside business or personal accounts (13.2%)
  3. Inadequate net worth (for custody) (12.3%)
  4. Inadequate net worth (no discretion & no custody) (10.4%)
  5. Insufficient bond (9.4%)

Given the volatility of financials-related deficiencies from 2007 to 2017, it's evident that investment advisory firms need to take a step back and ensure they are meeting the requirements to stay in compliance with the relevant state or federal regulatory requirements. ARIA compliance consultants, we recommend that firms keep regularly updated financial records that clearly reflect sufficient net worth values when required. In addition, we encourage all investment advisory firms to follow NASAA’s guidance in regards to keeping accurate financials, filing financials timely with the jurisdiction, and maintaining a surety bond if required.

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

Download the Top RIA Compliance Deficiencies 2015 Infographic 

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 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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