More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
Although the SEC may have hemorrhaged senior staff this year, its rules and regulations remain in full force and effect. For RIAs, this means that the end of the year should be a time to prepare for and tackle the annual regulatory requirements imposed upon them
In the first part of our two-part series of blogs on what advisors should be reviewing at this time of the year, we spoke about which updates you should be making to your Form ADV and your 'annual review' mandated by the SEC. In this blog, we remind RIAs about their privacy policies, recommend checking yourself out on the IAPD, and suggest reviewing where your clients live.
Check Yourself Out
As part of your year-end compliance self-review, look yourself up on the SEC’s Investment Adviser Public Disclosure (“IAPD”) website (here) and, if you are a registered representative of a broker-dealer, FINRA’s BrokerCheck website (here). Is there any incorrect information? Complaints or disclosures you were unaware of? Information on both sites is publicly-available, so make sure it is accurate and correct any inaccuracies. While you’re at it, check out the information displayed about your firm on the IAPD website as well and update your ADV Part 1 as part of your annual updating amendment if necessary.
Check Out Your Clients
Keep track of the states in which your clients reside. Once you have more than a de-minimus number of clients in a particular state (generally five), you are required to notice file in that state and pay the applicable state filing fees. Certain states, however, have no de-minimus exemption and require notice filing, fees, and/or registration even if you have only one client residing in that state. Check with the applicable state securities regulator to determine if you need to notice file, pay fees, or register in a particular state.
Check Your AUM
Keep track of your assets under management. Dodd-Frank changed the SEC-registration threshold from $25 million to $100 million. If you are a state-registered RIA and experienced significant AUM growth in the prior year that pushed you above the $100 million threshold, you likely will have to switch from state to SEC registration. Conversely, if you are a SEC-registered RIA and experienced a significant AUM decline in the prior year that dropped you below $90 million (accounting for a $10 million buffer), you likely will have to switch from SEC to state registration. (Be careful to accurately measure your true assets under management; the SEC is focusing more on this number, and please don't muddy the waters by speaking about "assets under advisement.")
Check Out the Calendar
Preliminary renewal statements are now available through IARD, so it’s the time to review the damage and deposit sufficient funds to allow your firm/IAR renewals to process in a timely fashion. If you have enough money residing in your online flex-funding account, it will be automatically transferred to your renewal account to satisfy payment obligations. A full renewal program calendar can be found here.
Dedicating sufficient time to your annual “to-do” list and your compliance program overall will save you from hastily scrambling to meet regulatory deadlines and help keep you on the lower end of the risk spectrum that the SEC uses to categorize all RIAs. In the world of compliance, the lower the risk the higher the reward.