An investment adviser compliance letter is a document that investment advisers send to their clients to inform them about their firm’s compliance with regulations. It serves to build trust and transparency with clients. Key elements of a compliance letter include an overview of the firm, confirmation of registration status, description of services provided, fees and compensation details, affiliated entities, custody of assets, and privacy policy. Common requirements are to send an annual compliance letter and update clients on any material changes to the firm’s operations or policies. Sending a well-crafted compliance letter shows that an adviser values regulatory compliance and prioritizes client interests.
Overview of advisory firm background and services
The compliance letter should start by providing some brief background on the advisory firm, such as when it was formed, ownership structure, office locations, website URL, and key service offerings. This overview establishes credentials upfront before getting into the regulatory details.
Confirmation of SEC registration status
A key compliance component is confirming that the firm is properly registered with either the SEC or appropriate state securities regulators. Reference the firm’s specific registration status and registration number.
Description of client account services
Outline the specific investment advisory services provided to clients, such as financial planning, portfolio management, selection of other advisers, publication of periodicals, pension consulting, etc. This enumerates the firm’s value proposition.
Explanation of fees and compensation
Provide clear details on how the firm is compensated for advisory services, such as through fixed fees, hourly charges, subscription fees, commissions, or carried interest. Disclose if fees are negotiable.
Disclosure of affiliated entities
To avoid conflicts of interest, the letter must disclose any affiliated entities that clients transact with for additional services outside of the advisory firm.
Crafting an investment advisor compliance letter that clearly details regulatory adherence and puts client interests first is an important practice. It displays accountability and builds trust.