Registered Investment Advisers (RIAs) are entrusted with a significant responsibility to uphold fiduciary duty, as mandated by the SEC.
According to MyComplianceOffice, this duty compels RIAs to prioritise their clients’ interests above their own, abstain from conflicting interests, and fully disclose material facts to both clients and potential clients. Establishing robust compliance programs is crucial for RIAs to demonstrate their adherence to these standards.
Investment advisers, whether individuals or companies, offer paid advice on securities to clients and are required to register with the SEC or state securities regulators. The Investment Advisers Act of 1940, amended notably in 1996 and 2010, outlines the obligations of investment advisers. Those managing assets over $100m or advising registered investment companies must register with the SEC, while others may register at the state level.
A well-rounded compliance program for RIAs includes a code of ethics, as specified by Compliance Rule 275.204A-1, which mandates a written ethical code for supervised personnel, banning investments based on non-public information. It also necessitates comprehensive policies and procedures (Compliance Rule 206(4)-7) to prevent and rectify violations of the Advisers Act, and requires the designation of a Chief Compliance Officer to oversee these protocols.
RIAs must conduct annual reviews of their compliance practices to ensure their effectiveness, as per Rule 206(4)-7. Additionally, the SEC mandates inclusion of Business Continuity Plans within the policies to protect clients from unforeseen disruptions.
Form ADV plays a critical role in the registration process for RIAs with both the SEC and state authorities. The form, which must be updated annually, helps maintain transparency with regulators by detailing the adviser’s business operations and affiliations.
RIAs are subject to regular examinations by the SEC and state regulators to ensure compliance with legal standards and proper disclosure practices. Rule 206(4)-5 also governs political contributions, prohibiting RIAs from receiving compensation from a government entity for two years after a political donation is made by the adviser or related persons.
Under Rule 204-2, RIAs are required to maintain accurate records related to their business and advisory services. Advisory contracts, as stipulated in Section 205 of the Advisers Act, must clearly outline the terms of service and are strictly regulated to protect client interests.
The Advertising Rule (Rule 206(4)-1), updated in 2020, addresses the evolving landscape of digital marketing, setting standards for the ethical promotion of advisory services. RIAs must also ensure that individual advisers are properly licensed, having passed the Series 65 Exam administered by FINRA.
As digital communication becomes more prevalent, RIAs face increased scrutiny regarding off-channel communications. Recent regulatory actions underscore the necessity for diligent monitoring and archiving to prevent compliance breaches. Additionally, the integration of automation can significantly enhance the efficacy of compliance measures by ensuring consistent application of policies and procedures.
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