More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
Advisory firms are spending more time on compliance, with 92% of registered investment advisors (RIAs) employing at least one full-time compliance specialist, an increase from 78% in 2010, according to a recently released compliance survey of 412 RIAs.
The Investment Adviser Association (IAA), ACA Compliance Group, and Old Mutual Asset Management recently released their sixth annual Investment Management Compliance Testing Survey, which found the top five compliance concerns for RIA firms of all sizes are advertising and marketing, data security, custody, personal trading and regulatory reporting.
The survey also found that other top compliance concerns among small, mid-sized and large RIA firms are pay to play rules, social media, whistleblowing, Form ADV Part 2, insider trading, anti-bribery and financial crime as well as foreign advisory activities.
The top two “hot compliance topics” for advisors participating in the survey were regulatory reporting (44%)—which includes compliance with Form ADV Part 2—as well as insider trading (42%) , notes Kathy Ireland, associate general counsel at IAA.
Among the 412 survey participants 7% indicated that they have more than 20 employees serving in a legal or compliance function, while 66% of chief compliance officers (CCOs) wear two or more hats and perform non-CCO functions. This is a decrease from the 2010 survey, in which 75% of CCOs performed non-CCO functions.
As to the SEC’s pay to play rule, which restricts advisors’ and their employees’ ability to make political contributions to government officials to influence the selection of advisors to public pension funds and other government entities, 32% of the firms polled reported having adopted a stand-alone pay to play policy, while 38% reported that they have addressed pay to play as part of other compliance policies.
Sixty-eight percent of firms apply their policies to all employees, not just to “covered associates” as defined under the rule. However, 20% of respondents—over half of which had less than $500 million in assets under management--said the pay to play rule doesn’t apply to them.
Sixty-four percent of the firms polled say they have adopted formal written policies and procedures to govern the use of social networking by the firm and/or employees.
Personal use of such social media sites by employees is permitted–subject to appropriate restrictions–at 54% of the firms responding. Sixteen percent impose no restrictions on the use of social networks, the survey found. But 29% of the firms say they prohibit the use of personal social networking websites for business purposes, while 83% of the respondents said they don’t have a corporate social networking site.