Registered Investment Adviser Examinations
What to Expect
Firms are subject to periodic, sometimes unannounced, audits by regulators.
The purpose of an audit is to determine compliance with the regulator’s licensing, books and records, and anti-fraud requirements.
Two types of exams are:
Exams will be conducted where the books and records are located.
Routine exams typically include the following four parts:
Notification of an upcoming routine exam is often provided in advance. A list of documents to have available is sent. Some exams may be unannounced.
The examiner conducts the initial interview with the firm contact person. Key personnel are also asked questions. Make requested documents readily available.
Expect to provide a tour of the office, including where trades are completed, and the location of client files. Provide examiners a quiet place to work.
Examiners will continue contact after on-site exam. Additional documents and information requests may take several weeks. A post-exam report is provided once work is completed.
Examiner may determine no further action is required. However, a deficiency or cautionary letter may be sent. If so, firm must respond to letter within set amount of time. Once all deficiencies have been satisfactorily addressed, the exam is closed.
Certain issues may be sent to enforcement for action.
- Prepare separate fee statements for clients showing valuations, calculations and amount.
- Review and update all contracts, as needed.
- Prepare and maintain client profiles, including suitability.
- Prepare and maintain all required records including financial records.
- Keep accurate financial records.
- Back-up electronic data and protect records.
- Prepare and keep a business continuity plan updated.
- Complete a compliance review at least annually.
- Review and revise all advertisements, i.e. website & performance advertising, for accuracy.
- Implement appropriate custody safeguards, if applicable.
- Review solicitor agreements, disclosure and delivery procedures
Common Exam Deficiencies*
- Incomplete, inadequate, or no contract with clients.
- Incomplete or no written supervisory/compliance procedures, if more than one employee.
- Non-compliance with supervisory procedures.
- Failure to offer/document offer to send disclosure documents annually.
- Inaccurate or incomplete Forms ADV Part 1 or 2.
- Failure to update for material changes and/or annually.
- ADV Part 1 and 2 do not reflect same information. Example: RIA is a broker-dealer shown in Part 1, but not disclosed in Part 2.
- Fee inconsistencies between Part 2 and client agreement.
- Fees charged are greater than the amount in contract.
* Any could result in enforcement action.
Information has been provided by NASAA. You will be subject to all relevant laws, regulations, rules, and orders whether or not they are included in this information sheet.