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NASAA Exams Spotlight Investment Advisers

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:



    1. registration,

    1. books and records,

    1. unethical business practices,

    1. supervision,

    1. financials,

    1. privacy,

    1. advertising,

    1. fees,

    1. custody,

    1. solicitors,

    1. investment activities,

    1. performance reporting, and

    1. 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.

    • Prepare and distribute a privacy policy initially and annually.

    • 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