RIA Compliance and Practice Management Blog

Top RIA Compliance Deficiencies: Firms Acting as a Solicitor Firm

Posted by RIA in a Box

Dec 22, 2014 9:05:10 AM

In 2013, members of the North American Securities Administration Association (NASAA) performed coordinated state exams in which examiners uncovered the top registered investment adviser (RIA) compliance deficiencies across 20 categories in 44 jurisdictions. 1,130 examinations were reported and 6,482 deficiencies were exposed throughout all of the categories. In addition to the top compliance deficiencies we discussed in our earlier blog series, the 2013 NASAA investment adviser examination report also found a number of other types of deficiencies. Last week we discussed these deficiencies as it relates to RIA firms advising a pooled investment vehicle (PIV).

In this week’s installation, we’ll be discussing solicitor deficiencies. It is common practice for RIA’s to utilize the service of or act as a solicitor in order to attract clients but this method should be practiced with caution. When acting as solicitor, firms must remain in compliance with the relevant SEC and state regulations. In 2013, NASAA reported that 24.1% of all RIA firms that act as solicitor had at least one deficiency as it relates to acting as solicitor. This is a significant increase from the 2011 report which noted 14.3% of advisers having solicitor-related deficiencies.

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The top solicitor-related deficiencies in 2013 were:

  1. Solicitor agreement: No written agreement with third party adviser (17.9%)
  2. Solicitor agreement: Description of solicitor’s activities (14.3%)
  3. Solicitor agreement: Compensation arrangement (10.7%)
  4. Solicitor not providing the third party adviser’s ADV Part 2/disclosure brochure to prospects (7.1%)
  5. Solicitor agreement: Provision requiring solicitor to deliver third party adviser’s disclosure brochure (7.1%)

Similarly, in the 2011 NASAA report, NASAA noted that one of the most common deficiencies for firms acting as solicitors was failure to properly deliver the Form ADV Part 2/disclosure brochure to prospective clients.

A solicitor relationship provides for additional compliance requirements that RIA firms must be aware of. As RIA compliance consultants, we strongly encourage the Chief Compliance Officer (CCO) of each investment advisory firm that acts as solicitor to take a few minutes to review the firm’s current procedures to ensure it is meeting all the relevant state or SEC regulatory requirements.

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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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