How to stay out of hot water as an investment advisorArticle added by Steven McCarty on February 18, 2010
Steven McCarty

Steven McCarty

San Diego, CA

Joined: March 22, 2006

If you're registered as an investment advisor, you'd best pay attention to the results of the North American Securities Administrators Association's (NASAA) recent field examinations. According to NASAA, the examinations of 458 state-level investment advisors, conducted between January and May 2009, revealed 1,887 deficiencies in 13 compliance areas.

Specifically, NASAA found that:
  • The top trouble spots in the area of registration were inconsistencies between parts one and two 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 suitability information, not properly safeguarding records, and not backing up data.

  • The leading unethical business practice deficiencies involved missing or no contracts and other contract-related issues, and misrepresenting qualifications, services and fees.

  • Financial deficiencies included inaccurate financials, insufficient or inaccurate net worth, no bank reconciliations, and poor financial conditions.

  • Other areas with deficiencies included privacy, advertising, fees, custody, solicitors, investment activities, performance reporting, and hedge funds.
Based on its findings, NASAA recommends the following best practices for investment advisors wishing to stay out of hot water:
  • Review and revise the Form ADV and disclosure brochure annually to reflect current and accurate information.

  • Review and update all contracts.

  • Prepare and maintain all required records, including financial records. Back-up electronic data and protect records.

  • Prepare and maintain client profiles.

  • Prepare a written compliance and supervisory procedures manual relevant to the type of business.

  • Prepare and distribute a privacy policy initially and annually.

  • Keep accurate financials. File timely with the jurisdiction. Maintain surety bond if required.

  • Calculate and document fees correctly, in accordance with contracts and ADV.

  • Review and revise all advertisements, including Web site and performance advertising, for accuracy.

  • Implement appropriate custody safeguards, if applicable.

  • Review solicitor agreements, disclosure, and delivery procedures.
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