Compliance Solutions for Investment Advisers

Some Tips for Safeguarding Client Info

Six good safeguarding tips: Shred financial documents and other printed personal material before discarding. Do not leave your laptop computer, iPad, iPhone or Blackberry in your car (or Starbucks) unattended. Do not leave a computer you are logged on to unattended or unprotected. Do not share your passwords with other persons (and do not post

Why is the IARD Closed on Weekends?

The entire world puts in some work time over the weekend. Why can’t the IARD system be up and running? For that matter, it should be accessible 24/7. After all, it is a computer system. My computer works round the clock. Anyway, it would be especially helpful during the registration renewal period.

Conduct Compliance Testing

“Forensic testing” is certainly the buzzword in compliance circles. Think CSI: Crime Scene Investigation. Essentially, an adviser should conduct some type of transactional or quality control tests that will assist the adviser in determining whether its activities are consistent with its stated compliance policies and procedures. A non-exhaustive list of tests includes: Reviewing client trade

Personal Liability and SEC Enforcement

Lest you think the SEC is not serious about holding individuals personally liable, here is an excerpt from a recent speech by Chairperson White: Individual Liability:  Any discussion of strong enforcement tools must include a discussion of our priority of pursuing individuals.  Personal accountability, of course, is a basic tenet of law enforcement.  And individual

Cybersecurity and Regulatory Enforcement

No one wants to be a victim of a cybersecurity attack. But if you are an investment adviser and your clients’ personally identifiable information (PII) is hacked, you will be a victim and, in the view of the regulators, you might just be treated as a perpetrator as well. Just ask R.T. Jones Capital Equities Management, the firm that

SEC Warns on CCO Outsourcing

The SEC recently conducted examinations of around 20 SEC-registered investment advisers and investment companies that outsourced their CCOs to unaffiliated third parties. The general takeaway is that outsourced CCOs sometimes were not knowledgeable about a firm’s business practices, did not have access to its documents and did not communicate regularly with its principals. It seems that many outsourced

Treasury Department Proposes AML Regs for Advisers

On August 25, 2015, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) released proposed anti-money laundering (“AML”) regulations that would require investment advisers registered or required to register with the SEC to have written AML programs meeting certain minimum requirements under the Bank Secrecy Act (the “BSA”). The proposed regulations would require advisers to: (i)

Keeping Trade Confirmations

Recently an adviser asked if they still needed to keep trade confirmations since they were retained by their broker-dealer/custodian. I think an adviser must retain them in their books and records for three reasons: 1.  The repository at the BD is the BD’s books and records and not the advisers.  Therefore, the adviser is technically

Everyone is Responsible for Compliance

Busy schedules and deadlines can make shortcuts seem appealing. But the work we complete and how we complete it matters.


Yesterday, for whatever reason, I was rummaging around a few adviser web sites and came across one that included a testimonial. How did I know it was a testimonial? Was it my compliance expertise? My familiarity with the nuances of marketing and advertising? My ability to discern the hidden meaning behind the written word? Nope.

The Need for a Risk Assessment

The SEC has made it clear time and time again that the first step toward developing strong written policies and procedures is for an investment adviser to identify all areas that create risk exposure or the potential for risk exposure. Accordingly, a risk assessment should serve as a mechanism for an investment adviser to identify its unique

Three Steps in Developing an Effective IPS

The initial questionnaire should accurately identify the client’s circumstances, investment objectives, risk tolerance, and all investment restrictions and preferences. Review of the questionnaire responses is a great time for the advisor to assess the client’s investment sophistication and to provide the client with capital markets education. The draft IPS is the initial IPS version, including

Alert – Insider Trading

The purpose of this Compliance Alert is to familiarize you with key insider trading concepts and issues. What is Insider Trading? The buying or selling of a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading is the

SEC Audits – Expect the Unexpected

As most of you know (and dread) the SEC sends out a document request list about two weeks prior to the on-site portion of the audit. However, be prepared to provide other documents on the fly. For example, examiners have been known to request changes made to the adviser’s web site for the past 12

Define a “Material” Compliance Event

The SEC Office of Compliance Inspections and Examinations encourages advisory firms to define what a material compliance event is for their organization. While there as many definitions as there are advisory firms, a common definition of a “Material Compliance Event” is “a breach of a securities rule or regulation, a willful violation of a Company policy

Soft Dollar Disclosures

One part of Item 12 (Brokerage) in the ADV Part 2A that advisers tend to miss when disclosing their soft dollar activities: You must describe the types of products and services you or any of your related persons acquired with client brokerage commission (or markups or markdowns) within your last fiscal year. Note: This description

Undisclosed Compensation Arrangements

Such arrangements may include, among others, undisclosed solicitation arrangements. It is not uncommon to have a discussion with a client about whether they can pay a certain person for client referrals. Often they cannot because the person is not qualified to act as a solicitor (e.g., they are not appropriately registered nor do they fit

2 Most Common Registration Deficiencies

The 2 most common registration deficiencies: Inconsistencies in responses to similar items found on Part 1 and Part 2 of Form ADV (e.g., Item 8C of Part 1A indicates that the adviser does not have investment discretion, but the adviser then discusses its discretionary authority in Item 16 of Part 2A). Inadequate or incomplete disclosures

An Ounce of (Compliance) Prevention

The enforcement staff gives credit to registrants that demonstrate effective compliance programs and a genuine commitment to ethical principles.  Advisers should focus on persuading the enforcement staff of the quality and depth of a firm’s compliance culture and its record of ethical conduct at the outset of an investigation, rather than discussing compliance programs during

5 Exam Focus Areas for New Advisers

The SEC has been engaging in shorter, more streamlined “presence exams” for newly registered advisers.  The following five focus areas make up the bulk of these exams: Marketing; Portfolio management; Conflicts of interest; Safety of client assets; and Valuation.  Streamlined though they may be, these focus areas still cover a lot of territory.