Compliance Solutions for Investment Advisers

Compliance Resolutions

Dear Compliance Professional,
Happy New Year.
Alas, it is only day 2 of the new year and I have already broken 80% of my resolutions (sadly, this is actually an improvement on last year’s efforts). Fortunately for you, however, the remaining 20% all involve ways I can help you understand and satisfy your compliance obligations. So while my new gym membership may go unused, you will at least benefit from the time I save by not working out.
What follows is a list of ten compliance action items that you can undertake to improve your compliance program and, when the time comes, prove to regulators that you have a strong culture of compliance. There is probably nothing here that you have not already seen or know about, but a gentle reminder can sometimes do wonders for your motivation and dedication.
Again, nothing magical about this list, just good solid compliance activities that are particularly relevant to the beginning of the new year:
  1. Set up your firm’s 2014 compliance calendar. This is a requirement for SEC-registered advisers and a smart thing to do for all advisers. There is too much to keep track of to approach your compliance on an ad hoc basis.
  2. Set up your firm’s compliance testing plan for the year. This is probably a sub-set of the calendar, but you need to have a specific set of tests that cover all areas of compliance (e.g., portfolio management, marketing, trading, etc.). Again, this is a requirement for SEC-registered advisers and the only way to really know (and prove) if your compliance program is on track.
  3. Schedule the annual test of your firm’s disaster recovery/business continuity plan.
  4. Compare the disclosures in your ADV Part 1 to those in your ADV 2A and advisory agreement(s) to ensure consistency.
  5. Review all disclosures – ADV 1, 2A, 2B, Advisory Agreements, Marketing Material – to make sure that they accurately reflect the conduct of your advisory business. Regulators are incredibly keen on having advisers say what they do and do what they say. It is actually that simple.
  6. Circulate copies of Form U-4 to each investment adviser representative to make sure all information is current. Unlike the ADV Part 1 which actually has to be filed each year, the Form U-4 can get quite stale because it gets renewed just by paying your annual fees.
  7. Review your client files to make sure client investment guideline information (e.g., risk tolerance, objectives, restrictions) is current. And while you are at it, you should make sure that all client investments fit their particular guidelines.
  8. Take a look at your firm’s Web site and check to see if all information is accurate and current and that required disclosures have been included. Also check third-party links to make sure that they lead where you think they do.
  9. Make sure your compliance manual/code of ethics reflects all recent rule changes (e.g., Identity Theft Red Flags Rules) and changes to your advisory business.
  10. And finally, my personal favorite . . . compare the books and records maintained by your firm to the requirements of your particular regulator (for SEC-registered advisers you can find the list in Rule 204-2). Verify that appropriate records are being created, maintained and preserved (for the requisite period of time) in all required areas.
These compliance actions are vitally important and eminently doable. I’ll save the overwhelming for the next newsletter and everyone’s favorite subject – compliance testing.
Until then . . . Cheers!
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