Blog Article

Top 2015 NASAA RIA Compliance Deficiencies: Advertising

Apr 13, 2016

Of the 1,170 RIA firms examined in 2015, 18.8% of firms had at least one advertising-related investment adviser compliance deficiency.

Coordinated state exams conducted by members of the North American Securities Administration Association (NASAA) in 2015 uncovered the top registered investment adviser (RIA) compliance deficiencies across 20 categories. Most recently we discussed custody-related deficiencies in regards to direct fee deduction, dual client invoicing, and safekeeping.

In this week’s installment of our report coverage, we are focusing in on another common RIA compliance deficiency category: advertising. The latest report shows that of the 1,170 investment advisory firms examined in 2015, 18.8% of all firms with assets under management (AUM) examined had at least one advertising-related regulatory deficiency. This frequency of advertising-related compliance issues is slightly up compared to the 18.1% figure reported in 2013. However, the occurrence of advertising-related issues is down a bit compared to the 21.6% frequency rate cited in the 2011 NASAA investment adviser examination report. The table below summarizes the changes in frequency over the years:

Frequency of state-registered RIA advertising compliance deficiencies

According to the 2015 report, about 18% of RIA firms with AUM greater than $30 million had at least one such deficiency compared to roughly 22% of investment advisory firms with less than $30 million in AUM. Also notable, about 19% of firms with only one investment adviser representative (IAR) had at least one advertising-related deficiency, while around 21% of firms with more than one IAR had at least one such deficiency.

The Chief Compliance Officer (CCO) of every investment advisory firm needs to be aware of the top advertising-related compliance deficiencies. In 2015, the top issues were:

  1. Untrue or misleading statements or omissions: qualifications, services, or fees (UBP) (23.8%)
  2. Other untrue or misleading statements or omissions (UBP) (16.5%)
  3. Testimonials (UBP) (13.4%)
  4. Insufficient website disclaimer (12.8%)
  5. Misuse of “RIA” or “IAR” (12.8%)

In 2013, the top issues were:

  1. Insufficient website disclaimer (19.2%)
  2. Misuse of “RIA” or “IAR” (18.4%)
  3. Qualifications, services, or fees (UBP) (13.2%)
  4. Other misleading statements or omissions (UBP) (10.2%)
  5. Misleading use of other professional designation (6.0%)

NASAA also noted in the 2015 report the types of advertising which most frequently led to advertising-related compliance deficiencies:

  1. Website (30%)
  2. Business cards or stationery (13%)
  3. Brochures (12%)
  4. Social media (10%)
  5. Newsletters (1%)

As more RIA firms explore different forms of online advertising, it’s important to remember that anything published on the website, social media, or other form of online media is considered to be advertising. As such, it’s vital that all forms of marketing, whether online or offline, are not false, misleading, or deceptive in any way. To avoid advertising-related compliance issues, RIA firms should review all advertisements, starting with its website, for accuracy and proper disclosures. As RIA compliance consultants, we strongly encourage the CCO of the investment advisory firm to review all of the firm’s marketing material and to continue to exercise great caution when considering performance advertising or marketing.