Top 2015 NASAA RIA Compliance Deficiencies: Financial Planning

In 2015, members of the North American Securities Administration Association (NASAA) performed coordinated state exams in which examiners uncovered the top registered investment adviser (RIA) compliance deficiencies in 42 jurisdictions. In total, 1,170 examinations were conducted and 4,983 deficiencies were reported. Previously, we discussed the most common regulatory compliance deficiencies related to RIA firms paying solicitors focusing on proper documentation being provided to prospective clients.

In this latest blog post, we shift our focus to looking at the top regulatory compliance deficiencies for investment advisory firms that offer financial planning services. In general, we continue to see more RIA firms looking to offer more holistic wealth services by providing financial planning and other related services. In the most recent 2015 investment adviser examination report, NASAA noted that 9.1% of all RIA firms serve as financial planners had at least one deficiency as it relates to financial planning. This is a slight increase from the 2013 report which found that 8.3% of all RIA firms that offered financial planning services had at least one financial planning-related deficiency. The table below highlights the changes in deficiency frequency over the 2013 and 2015 reports:

In 2015, the top financial planning-related deficiencies were:

1. Inadequate planning contract (services, fees, other terms and conditions) (32.4%)
2. Inadequate disclosure of planning fees (26.5%)
3. No written planning contract (20.6%)
4. No or inadequate disclosure of conflicts of interest (11.8%)
5. Unreasonable or unfair planning fees (8.8%)

In 2013, the top financial planning-related deficiencies were:

1. No written planning contract (28.6%)
2. Inadequate client contract (21.4%)
3. Inadequate disclosure of planning fees (21.4%)
4. Unreasonable or excessive fees (7.1%)
5. No or inadequate disclosure of conflicts of interest (3.6%)

As RIA compliance consultants, we strongly encourage the Chief Compliance Officer (CCO) of each investment advisory firm that offers financial planning to take a few minutes to review the firm’s current procedures to ensure it is meeting all the relevant state or SEC regulatory requirements. In particular, firms should focus on the following:

• Having a written financial planning contract in place that clearly articulates all fees
• Ensuring that all financial planning fees charged to each separate client are reasonable