As a compliance professional serving registered investment adviser (RIA) firm, ensuring your compliance program aligns with industry regulations and requirements is your number one priority. Throw in the fact that industry regulations are ever-changing, and you really have your work cut out for you
While you’re likely well aware of day-to-day compliance challenges, like chasing down forms and preclearances from employees throughout you’re firm, these bigger picture compliance concerns have the ability to completely derail compliance within a financial advisory firm. In this blog, we’ll speak to the top challenges for compliance team in 2023, and how to address those concerns and protect your investment firm.
Solutions to the top five compliance concerns for registered investment advisers
Here are the top five challenges to compliance programs at investment advisory firms face:
- Ensuring your investment firm is properly registered with the appropriate regulatory bodies.
Solution: One of the most significant compliance concerns for investment advisers is ensuring they are properly registered with the appropriate regulatory bodies. Investment advisers are required to register with the Securities and Exchange Commission (SEC) or the state securities regulators, depending on their size and the location of their clients, and they must ensure that they update their registration status if their business changes in a way which affects their registration requirements. Compliance teams can help investment advisers by monitoring changes in registration requirements and ensuring any necessary updates to their registration status are made as soon as possible.
- Creating a Code of Ethics that complies with regulatory requirements.
Solution: Regulators require investment firms to develop and maintain a Code of Ethics which outlines their ethical and professional standards. Investment firms can assist advisers in developing a comprehensive Code of Ethics that includes provisions for conflicts of interest, insider trading and other ethical issues. Investment firms can also provide training to ensure that advisers understand the Code of Ethics and are held accountable for any violations.
- Maintaining record-keeping practices.
Solution: Another compliance concern for investment advisers is record-keeping. A violation of record-keeping regulations can be costly. Investment advisers are required to maintain accurate and complete records of all transactions, including client communications, investment recommendations and other business-related activities.
Compliance teams can help advisers by providing record-keeping software and ensuring that advisers retain records for the required period. Compliance teams can also assist advisers in organizing and categorizing records to ensure they are easily accessible in case of a regulatory audit.
- Compliance with advertising/marketing regulations.
Solution: Investment advisers must also ensure their advertising is compliant with industry regulations. This is especially a concern as of late, in light of SEC Rule 206(4)-1, also known as the Marketing Rule for investment advisers, and the SEC’s intentions to scrutinize firms’ compliance with the new Marketing Rule in upcoming examinations.
Investment advisers must ensure their advertising is compliant with industry regulations. Investment firms can help advisers by reviewing advertising materials before they are released to ensure they are truthful, accurate and not misleading. Investment firms can also provide training to advisers to ensure they understand advertising regulations and are aware of the risks associated with non-compliant advertising.
- Regulatory cybersecurity concerns.
Solution: In today’s digital age, cybersecurity is a growing concern for investment advisers. Advisers must ensure they have adequate cybersecurity measures in place to protect client information and business data. Compliance teams can work with their firm’s IT teams to regularly update software and implement robust security protocols which align with regulatory requirements. Compliance teams can also provide training to advisers on best practices for cybersecurity and conduct regular cybersecurity audits with the IT team to ensure compliance.
Simply put, compliance is and will remain a critical concern for investment advisers. Compliance teams can assist advisers in addressing compliance concerns by monitoring registration requirements, developing comprehensive Codes of Ethics, providing record-keeping software, reviewing advertising materials, implementing robust cybersecurity measures and implementing automation to help your compliance team your investment firms’ needs. By prioritizing compliance in all business operations, investment advisers can avoid legal and financial consequences and protect their clients’ interests.
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