Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, October 3, 2011

Coordinated State Exams Identify Top Investment Adviser Deficiencies

NASAA released an updated series of recommended best practices that investment advisers should consider to minimize the risk of regulatory violations.  The best practices were developed after a series of coordinated examinations of investment advisers by 45 state and provincial securities examiners revealed a number of significant problem areas. Examinations of 825 investment advisers conducted between January 1, 2011 and June 30, 2011 uncovered 3,543 deficiencies in 13 compliance areas, compared to 1,887 deficiencies in 13 compliance areas identified in a similar 2009 coordinated examination of 458 investment advisers.

The 2011 examinations were conducted under the guidance of NASAA’s Investment Adviser Operations Project Group. The top five categories with the greatest number of deficiencies involved registration, books and records, unethical business practices, supervision, and advertising.

The examinations revealed that:

  • The top registration deficiencies were inconsistencies between parts I and II of form ADV and failing to amend form ADV in a timely manner.
  • In the area of preparing and maintaining current and accurate books and records, the top deficiencies included not maintaining client suitability information, not properly safeguarding client records and data, and not backing up data.
  • The leading unethical business practice deficiencies involved missing or no contracts and other contract-related issues, altered documentation and signing blank documents. 
  • The most common supervision deficiencies were inadequate or no supervisory/compliance procedures, supervision over personal trades, and remote location supervision.
  • Common advertising deficiencies included issues involving websites, correspondence, business cards and the misuse of “RIA,” (Registered Investment Adviser).

Other areas in which investment advisers faced compliance challenges included privacy, fees, custody, investment activities, and solicitors.

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