Pursuant to Rule 204A-1 under the Investment Advisers Act, each SEC-registered adviser must  adopt a code of ethics meeting the following minimum requirements:

  • It must establish a standard of business conduct for all employees that reflects the adviser’s fiduciary obligations and requires compliance with the federal securities laws;
  • It must require access persons of a Registered Investment Adviser (“RIA”) to report their personal securities transactions (“PSTs”) and holdings on an initial and ongoing basis;
  • It must obligate an RIA’s access persons to obtain the firm’s approval before investing in an initial public offering or private placement;
  • It must require an RIA to maintain and enforce the code of ethics by reviewing access persons’ PST reports to identify improper trading;
  • It must demand prompt reporting of any violations; and
  • It must stipulate that an RIA will provide a copy of the code of ethics to all employees and obtain their written acknowledgment that they received it.

Those written acknowledgements must be retained in an RIA’s books and records. RIAs must also retain the names of their access persons.

An “access person” is any director, officer, or partner of an RIA, or any employee who:

  • Has access to nonpublic information regarding clients’ securities transactions;
  • Participates in making securities recommendations to clients;
  • Has access to nonpublic securities recommendations; or
  • Has access to nonpublic information regarding the securities holdings of affiliated mutual funds.

A code of ethics helps to ensure that access persons do not exploit nonpublic information for their own gain. Only access persons are obligated to submit PST reports.

New access persons must file initial holdings reports no later than ten days after becoming an access person. An annual holdings report must be filed at least once during each twelve-month period. Quarterly transaction reports must be filed no later than thirty days after the end of the quarter.

Certain states require investment advisers registered in their jurisdictions to implement a code of ethics. Even if they are not required to do so, state-registered advisers should consider implementing a code of ethics. Furthermore, all RIAs, whether they are SEC or state-registered, should consider implementing codes of ethics that go beyond the minimum requirements established by the SEC’s rule. For example, it is a best practice for a code of ethics to address the firm’s policy on accepting and receiving gifts.

About RIA Compliance Group: RIA Compliance Group is an investment adviser compliance consulting firm based in Boca Raton, Florida. The firm’s mission is to provide affordable, timely, practical, and cost-effective compliance advice. We help investment advisers to comply with the myriad of state and SEC regulations and compliance obligations facing their firms. RIA Compliance Group takes pride in giving personal service and real world compliance advice, not theoretical concepts and legalese. The firm interacts on a daily basis with SEC and state securities regulators.

RIA Compliance Group, LLC – 5301 North Federal Highway, Suite 380, Boca Raton, FL 33487 –
Tel: 561-600-0564 – sales@ria-compliance.com.