Implementing thorough and effective compliance policies and procedures can help Registered Investment Advisers (“RIAs”) avoid compliance problems. Rule 206(4)-7 under the Investment Advisers Act of 1940, better known as the Compliance Program Rule, requires RIAs to review their policies and procedures annually in order to improve them. State-registered investment advisers should conduct a similar review in an effort to make their policies and procedures more effective.

Pursuant to Rule 206(4)-7, SEC-registered advisers must designate a Chief Compliance Officer (“CCO”) who is knowledgeable regarding the securities laws. The CCO must possess sufficient seniority and authority to compel compliance with the firm’s policies and procedures.

A best practice is for RIAs to conduct interim reviews, which can be incorporated in the firm’s annual review. Compliance policies and procedures for SEC Investment Advisor Compliance should be revised and improved in response to these reviews.

In designing policies and procedures, RIAs should create a list of risks facing investors, which are created by the firm’s business model. An RIA’s policies and procedures should be designed to:

  • Prevent violations from occurring;
  • Detect existing violations; and
  • Correct violations.

Rule 206(4)-7 gives RIAs flexibility in designing compliance policies and procedures. They should address key areas such as:

  • Portfolio management processes;
  • Trading practices;
  • Proprietary trading and personal trading activities of supervised persons;
  • Disclosures and account statements;
  • Safeguarding of clients’ assets from conversion or misuse by advisory personnel;
  • Creation and maintenance of required books and records;
  • Marketing of advisory services, including the use of solicitors;
  • Valuation processes especially as they relate to fee calculations;
  • Safeguards for protecting client privacy; and Business continuity and disaster recovery plans (“BCPs”).

In addition, RIAs should implement cybersecurity policies and procedures.

Policies and procedures must be tailored to the RIA’s business model. Using a boiler-plate compliance manual will cause problems for an RIA.

RIAs must retain a copy of their annual review in their books and records. They should also retain all versions of their policies and procedures.

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 –