As a result of a series of examinations of investment advisers by 35 state and provincial securities examiners, the North American Securities Administrators Association (NASAA) recently released a series of recommended best practices that investment advisers should consider in order to improve their compliance practices and procedures. The series of examinations revealed quite a variety of compliance and control deficiencies, including:
- books and records,
- unethical business practices,
- investment activities,
- performance reporting, and
- hedge funds
According to NASAA's news release, the examinations revealed, in particular, that:
- The top trouble spots in the area of registration were inconsistencies between parts I and II of form ADV and failing to amend form ADV in a timely manner.
- In the area of preparing and maintaining current and accurate books and records, the top deficiencies included not maintaining suitability information, not properly safeguarding records and not backing up data.
- The leading unethical business practice deficiencies involved missing or no contracts and other contract-related issues, and misrepresenting qualifications, services and fees.
- The most common supervision deficiencies were a failure to have any written supervisory/compliance procedures or having inadequate procedures in place.
- Financial deficiencies included inaccurate financials, insufficient or inaccurate net worth, no bank reconciliations and poor financial conditions.
Based on these exam results, NASAA is recommending a list of "best practices" to aid investment advisers in developing more effective compliance practices and procedures:
- Review and revise the Form ADV and disclosure brochure annually to reflect current and accurate information.
- Review and update all contracts.
- Prepare and maintain all required records including financial records. Back-up electronic data and protect records.
- Prepare and maintain client profiles.
- Prepare a written compliance and supervisory procedures manual relevant to the type of business.
- Keep accurate financials. File timely with the jurisdiction. Maintain surety bond if required.
- Calculate and document fees correctly in accordance with contracts and ADV.
- Review and revise all advertisements, including website and performance advertising, for accuracy.
- Implement appropriate custody safeguards, if applicable.
- Review solicitor agreements, disclosure, and delivery procedures.
The full text of NASAA's September 29, 2009 press release is available at: http://www.nasaa.org/NASAA_Newsroom/Current_NASAA_Headlines/11304.cfm