As a registered investment advisor (RIA), compliance is crucial to running a successful advisory firm and avoiding regulatory issues. Some key aspects of RIA compliance include: registering with regulatory bodies like the SEC or state securities regulators, adhering to fiduciary standards, implementing policies and procedures, undergoing compliance reviews, meeting disclosure requirements, and staying up-to-date on changing regulations. By making compliance a top priority, RIAs can focus on serving clients while protecting their business interests.
Properly registering your RIA firm
The first step in RIA compliance is registering your firm with the appropriate regulatory agency, either the SEC or your state securities regulator. The SEC requires RIAs managing over $100 million in assets to register federally while smaller RIAs can register at the state level. Registration establishes your status as an RIA and involves disclosing key details about your firm, ownership structure, services offered, assets under management, and more. It’s crucial to keep your registration current through filing amendments when firm details change.
Adhering to fiduciary duty
As fiduciaries, RIAs have an ethical and legal obligation to act in clients’ best interests. This fiduciary standard requires RIAs to provide suitable investment advice based on clients’ goals and risk tolerance while making full and fair disclosures about services, fees, and potential conflicts of interest. RIAs must also uphold standards of conduct related to diligence, loyalty, and care when dealing with client assets. Failure to fulfill fiduciary responsibilities could lead to SEC or state enforcement actions.
Implementing compliance policies and procedures
RIAs must establish and enforce written policies and procedures reasonably designed to prevent violations of securities laws. These compliance policies and procedures should cover areas like portfolio management processes, trading practices, disclosure obligations, custody of client assets, employee conduct, and more. Documentation, training, monitoring, and testing are key to demonstrating policies and procedures are effectively implemented.
Undergoing compliance reviews
RIAs are subject to examinations by the SEC or state regulators to assess their compliance controls. These exams scrutinize RIAs’ business practices, conflicts of interest, disclosures, compliance policies and procedures, investment recommendations, and more. Deficiencies can result in fines or disciplinary action. Many RIAs also undergo voluntary third-party compliance reviews annually to identify and remediate gaps.
Meeting disclosure requirements
RIAs must make comprehensive disclosures to clients about their firm, business model, services, fees, conflicts, and disciplinary history during account openings and upon material changes. These disclosures aid clients in evaluating RIAs’ qualifications and the terms of their advisory relationships. The SEC’s Form ADV parts 1 and 2 play a key role in RIA disclosure obligations.
Staying current on regulations
RIA regulations frequently evolve, so maintaining compliance also requires diligent efforts to stay up-to-date. This can involve designating personnel to monitor regulatory changes, participating in industry groups, reading regulatory alerts, attending conferences, and thoroughly reviewing new rules like Reg BI. Keeping informed ensures your RIA can adapt policies and practices to align with the regulatory landscape.
For registered investment advisors, compliance is an ongoing process that requires registering with regulators, upholding fiduciary duty, implementing robust policies and procedures, undergoing regular compliance reviews, meeting disclosure requirements, and keeping current on regulation changes. Focusing on these key aspects provides a strong compliance foundation for RIAs.