A Registered Investment Advisor, or RIA, is required to follow regulatory frameworks to remain compliant with best practices. Depending on the amount of assets under management, an RIA registers with either the Securities and Exchange Commission or a state regulator. Some regulatory consultant companies provide an outsourced Chief Compliance Officer; this role offers RIA compliance services. Here are five compliance gaps that can put an RIA at regulatory risk:
1. Inadequate Compliance Policies
Having overly generalized or missing policies and procedures leads to compliance gaps. To prevent this issue, a CCO that provides RIA compliance services is able to help build the compliance program, assisting with creating a detailed manual. They also draft policies such as the Code of Ethics and Insider Trading Policy; this provides the firm with more specific practices.
There are also cases where there are compliance practices in place that the firm is not following due to lack of funds or communication. An annual review works to identify what areas the firm needs to improve in, and a regulatory consultant company provides customized risk-based reviews. This review includes:
- Checking policies to make sure client information is protected
- Looking over practices to protect client assets
- Testing asset collection methods
- Assessing the Business Continuity Plan
After the review, the firm is provided with the results and detailed suggestions, so it can address and improve compliance gaps in policies. A CCO is able to promote compliance education by hosting internal training for the team on relevant topics. They also chair compliance committee gatherings.
2. Inaccurate Disclosure Documents
Potential conflicts of interest may require disclosure documents. An RIA is responsible for collecting certifications and disclosure documents from representatives; they may also need to obtain disclosure statements and agreements from solicitors. A potential compliance issue is disclosures that are missing information or that have inaccurate information.
Working with a CCO or regulatory consulting company can help prevent this gap. They are able to review solicitor statements for accuracy, and they help collect the correct documents. A CCO checks that client-facing statements follow ethical requirements. This helps prevent issues such as regulatory action.
3. Incorrect Marketing Material
Incorrect marketing materials that present inaccurate information about credentials are a compliance issue. All marketing information is required to contain accurate materials about performance, third-party rankings, and advisory experience. Advisers should be able to check and substantiate any claims made in marketing materials. A CCO has the responsibility of going over and approving the RIA’s adviser advertising. During the annual review, a team assesses promotional materials to see if they are delivering on clarity and compliance; they also check for client engagement.
4. Late or Incorrect Filing
Late or inaccurate filing of required documents can delay SEC registration or lead to missed deadlines. These documents include Form ADV Parts 1 and 2, and they require yearly updates. Part 2 needs to be delivered within 120 days of the end of the financial year. If there is a significant change in the company, then the RIA files an amended Form ADV.
A CCO can draft forms for the company and file them on behalf of the RIA to prevent missed deadlines. They also handle other paperwork such as state notice registrations and filings. A CCO creates compliance deadlines and calendars; this helps prevent firms from missing required activities and deadlines.
5. Lacking of Electronic Oversight
Digital communication with clients, including email, should be secure and follow compliance policies. Having specific, tested policies in place to govern electronic communication helps prevent potential security issues. A CCO is also able to perform random monthly reviews to make sure that the team is adhering to these policies. Strong cybersecurity protocols provide additional protection for client correspondence; some consulting companies offer cybersecurity training and testing.
Learn More About RIA Compliance Services
Closing compliance gaps helps prevent penalties for a firm, such as financial consequences or a negative reputation. A regulatory consulting firm can work with an RIA to prevent compliance issues; this includes incorrect fee billing and lacking oversight of third-party relationships. They also help the team prepare for examinations and communicate with the regulators during the process. To find out more about RIA compliance services, find a regulatory consulting company today.
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