Recently, RIA in a Box attended the 2014 Tennessee Annual Investment Adviser Compliance Seminar in Nashville, Tennessee. It was a packed room which is a good sign that the Tennessee investment adviser community recognizes the importance of its compliance obligations.
Several staff members of the Tennessee Securities Division presented information to attendees. Assistant Commissioner Daphne Smith led off with comments about national issues relevant to investment advisers and the collaboration among state and federal securities regulators and self regulatory organizations (SROs) via the North American Securities Administrators Association (NASAA). She addressed the need for advisory firms to have policies and procedures related to cybersecurity and indicated the Division would be surveying its registered investment adviser (RIA) firms on how they protect against and prevent cyber-attacks. Advisory firms should expect to receive this voluntary survey during the first quarter of 2015. She further indicated that the state of Tennessee will use the survey responses to develop best practices for RIAs related to cybersecurity.
Ms. Smith also spoke about the need for RIA firms to be aware of issues facing senior investors, particularly regarding the issue of diminished capacity. She indicated this an important issue for state regulators and NASAA has formed a committee to examine issues facing seniors.
Steven Patterson, the Division’s senior examiner handling investment adviser registration addressed the hot topic of solicitor registration and the issue of registration succession. Mr. Patterson noted that a firm located in Tennessee that receives compensation from an RIA firm for client referrals is not required to register in Tennessee as an investment adviser. However, individuals who receive compensation for such referrals must register as an individual investment adviser representative (IAR). Mr. Patterson noted that the issue of registration succession is one that often causes confusion. If an advisory firm changes its form of entity – for example, from a corporation to a limited liability corporation (LLC) — then the RIA firm must indicate on its Form ADV Part 1A Item 4 that it is filing to succeed to the business of an RIA.
Judith Dixon Poynter, the Division’s Examination Manager, spoke about exams the Division may conduct of its RIA firms located in the state. She indicated that advisory firms are examined on a one to three year cycle. Worthy of note is the requirement under Tennessee rules related to the maintenance of required books and records. While RIAs may keep electronic records, Ms. Poynter stated that the rule requires RIA firms to maintain a hard file for each client noting which records are maintained electronically and the date that the firm began keeping the client’s records electronically.
Carmen Jones, an enforcement attorney with the Division, finished off the seminar with news of recent enforcement cases investigated or filed by the Division.
Overall, this was a terrific outreach event put on by the Tennessee Securities Division and every RIA firm located in the state should look to attend this event in 2015 if possible.