All RIAs are required to register either with the SEC or a state securities regulator. In general, RIAs managing less than $100 million of assets register with their home state, while those managing more than $100 million register with the SEC. Both federal covered advisers and state registered advisers have requirements set for policies and procedures. While the requirements set are similar, some state regulations may be slightly different.
The SEC
As a registered investment adviser, you are required to adopt and implement written policies and procedures that are reasonably designed to prevent violations of the Advisers Act. The Commission has said that it expects that these policies and procedures would be designed to prevent, detect, and correct violations of the Advisers Act. You must review those policies and procedures at least annually for their adequacy and the effectiveness of their implementation, and designate a chief compliance officer (“CCO”) to be responsible for administering your policies and procedures (under the “Compliance Rule” — Rule 206(4)-7).
The SEC notes that your policies and procedures are not required to contain specific elements. Rather, you should analyze your individual operations and identify conflicts and other compliance factors that create risks for your firm and then design policies and procedures that address those risks. The Commission has stated that it expects your policies and procedures, at a minimum, to address the following issues to the extent that they are relevant to your business:
- Portfolio management processes, including allocation of investment opportunities among clients and consistency of portfolios with clients’ investment objectives, your disclosures to clients, and applicable regulatory restrictions;
- The accuracy of disclosures made to investors, clients, and regulators, including account statements and advertisements;
- Proprietary trading by you and the personal trading activities of your supervised persons;
- Safeguarding of client assets from conversion or inappropriate use by your personnel;
- The accurate creation of required records and their maintenance in a manner that secures them from unauthorized alteration or use and protects them from untimely destruction;
- Safeguards for the privacy protection of client records and information;
- Trading practices, including procedures by which you satisfy your best execution obligation, use client brokerage to obtain research and other services (referred to as “soft dollar arrangements”), and allocate aggregated trades among clients;
- Marketing advisory services, including the use of solicitors;
- Processes to value client holdings and assess fees based on those valuations; and
- Business continuity
The States
While most of the requirements for RIA’s policies and procedures varies by state, all investment advisors are required to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the misuse of material non-public (“insider”) information. Before registering with a state, make sure to review their rules and regulations.
For more information on RIAs, checkout our blogs on investment adviser registration:
- When Do You Have to Register as an Investment Advisor?
- Exclusions from the Definition of Investment Advisor
- Federal Exemptions from Investment Advisor Registration
Also check out our blogs on Form ADV:
If you need help drafting and implementing your policies and procedures, please contact us. MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities.