Investment Advisors Want to Know Where State Regulators Have Been Focusing Their Attention

NASAA’s Investment Advisor Section Issues Report Highlighting Activities

The North American Securities Administrators Association (“NASAA”) recently issued the 2021 Investment Adviser Section Annual Report.

The report provided a profile of state-registered Investment Advisers (“RIAs”) as follows”

  • 81% of RIAS are 1-2 person shops
  • 81% of clients are retail investors
  • Top services include
    • Individual Portfolio Management
    • Financial Planning
    • Selection of other advisers
  • Fees Charged
    • 84 % Percentage of AUM
    • 52%  Hourly
    • 9% Performance

The two model rules developed by the Section and approved by the membership in November 2020 are:

  • Continuing Education (“CE”) for Investment Adviser Representatives (“IARs”) requires that state and SEC IARs must complete 12 hours of CE annually. The requirements indicate that an IAR registered with a FINRA registered firm and in compliance with the FINRA CE requirement are not subject to this rule.
  • The Investment Adviser Policies and Procedures (Manual), although required in most states, seeks to “foster cultures of compliance with their legal and regulatory obligations,” to provide uniformity among the states compliance requirements, and provides a compliance grid for use by state RIAs.

These model rules will only become effective after a state adopts the rule by legislation, administrative rule promulgation or order.

The report also discussed the importance of challenges encountered and recommendations for best practices to implement, during a pandemic:

Business Continuity and Succession Planning.  It is important for all firms to have a business continuity and succession plan (“BCS Plan”) that can be implemented when key personnel are unable to perform their assigned functions or during office work disruptions. BCS Plans are even more critical for solo adviser firms, as clients may not be aware as to whom, if anyone, will continue to service accounts.

Cybersecurity and Protection of Client Information. The increase in remote work has led to an increase in the use of internal and external electronic communications. Firms must be confident that working remotely does not place confidential client information at risk, provides for orderly business transactions and effective communication with clients.

Supervision. In most states, investment advisers are required to have written procedures to supervise the activities of all firm personnel. The requirement also applies to single adviser firms. These procedures should be tailored to the specific activities and operations of each firm.  Firms that have moved to a full or partial remote work environment should incorporate changes to their supervisory systems and ensure that the firm’s written procedures address these changes.

Meaningful and effective compliance tools and procedures can give your firm a competitive advantage and allow your business to thrive. Oyster Consulting has the experience and expertise to create or evaluate your compliance program, Business Continuity Plan, Cybersecurity program and Supervision policies, procedures and controls. For more information about how Oyster Consulting can help your firm, click here or call (804) 965-5400.  ​

About the Author: Bill is an innovative and respected financial services professional with over 35 years of consulting and regulatory experience. Bill leverages his industry expertise and relationships with state and federal regulators and self-regulatory organizations to guide broker-dealers, investment advisers and law firms providing legal representation through both proactive and reactive regulatory processes and compliance issues.