RIA Compliance and Practice Management Blog

Top RIA Compliance Deficiencies: Registration

Posted by RIA in a Box

Aug 11, 2014 5:28:00 PM

In 2013, coordinated state exams conducted by members of the North American Securities Administration Association (NASAA) uncovered the top registered investment adviser (RIA) compliance deficiencies across 20 categories. Last week we discussed the deficiencies in books and records, specifically suitability documentation, missing client contracts, trial balance/financial statements, written supervisory procedures, and disclosure brochures.

This week we’ll cover another common RIA compliance deficiency category: Registration. The 2013 report contains results from 1,130 investment advisory firms examined. In the Registration category, of all RIA firms examined, 58.5% of audits noted at least one deficiency which ranks as the second most common deficiency category behind only books and records. This figure is slightly less than the 59.9% found in the comparable 2011 NASAA summary report. 62.8% of firms with greater than $30 million in assets under management (AUM) had registration-related deficiencies, compared to the 53% of firms with less than $30 million in AUM. Around 60% RIA firms examined for the first time had registration-related deficiencies compared to around 50% of firms that had previously been examined.

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As stated above, 58.5% of investment advisory firms examined in the most recent NASAA report had registration-related deficiencies. The top registration-related deficiencies in 2013 were:

  1. Form ADV- Part 1 vs. Part 2 (13.5%)
  2. Form ADV- Fee Structure (9.5%)
  3. Form ADV- Services Provided (9.3%)
  4. Form ADV- Business Description (7.5%)
  5. Timely filing of amendments (6.9%)

In 2011, the top registration investment adviser regulatory issues were:

  1. Form ADV: Inconsistency between Form ADV Parts 1 & 2, updates not made timely, etc. (~35%)
  2. Annual ADV Offer (~12%)
  3. Assets Under Management (~11%)
  4. Fee Structure (~7%)
  5. Affiliate Disclosure (~6%)

Comparing the most recent 2013 summary to the 2011 study, it's evident that inconsistency between an RIA firm's Form ADV Part 1 and 2 remains a very common registration-related compliance deficiency. In addition, RIA firms need to remain quite vigilant around properly disclosing the firm's fee structure and regulatory assets under management. The Form ADV is the first impression that an RIA firm gets to make on a regulator and it's crucial that the investment advisory. Thus, as RIA compliance consultants, we encourage the Chief Compliance Officer (CCO) of the investment advisory firm to take a few minutes to review the firm's current Form ADV filings to ensure that the filings properly reflect the firm's current business practices.

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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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