In 2013, members of the North American Securities Administration Association (NASAA) performed coordinated state exams in examiners uncovered the top registered investment adviser (RIA) compliance deficiencies across 20 categories. Last week we discussed the deficiencies in privacy policies, specifically initial and annual delivery of the privacy policy to clients.
In this week’s installment we’ll cover another common RIA compliance deficiency category: Brochure delivery. The 2013 NASAA investment adviser examination report contains results from 1,130 investment advisory firms examined. In the brochure delivery category, of all RIA firms examined, 18.3% of audits noted at least one deficiency. This figure is particularly notable due to the fact that brochure delivery-related deficiencies were not even ranked within the top ten deficiency categories in the 2011 NASAA investment advisor report.
According to the 2013 report, 22.8% of firms with less than $30 million in assets under management (AUM) had brochure delivery-related deficiencies, compared to 12.5% of investment advisory firms with more than $30 million in AUM. Just over 20% of RIA firms audited for the first time had brochure delivery-related deficiencies compared to around 15% of firms that had previously been examined. In other words, previously examined firms performed slightly better than their peers going through their first exam.
As stated earlier, 18.3% of investment advisory firms examined according to the 2013 NASAA report had brochure delivery-related deficiencies. The Chief Compliance Officer (CCO) of each investment adviser firm should to be aware of the top brochure delivery compliance deficiencies. In 2013, the top issues were:
- Annual offering/delivery (49.3%)
- Update/Material change delivery (20.7%)
- Initial delivery (13.7%)
Given the significant increase in brochure delivery-related deficiencies between 2011 and 2013, it is apparent that RIA firms need to take a step back and ensure that they are meeting the annual delivery requirements to stay in compliance with the relevant state of SEC statutes. It should also be noted that a firm’s brochure is also more formally referred to as the Form ADV Part 2A disclosure brochure. As RIA compliance consultants, we strongly encourage the CCO of the investment advisory firm to take a few minutes to review the firm’s current brochure delivery procedures.