As a new registered investment adviser (RIA), you know compliance is important – but so is growing your business. How can you build your firm on a foundation of compliance?
The SEC’s regulations are complex and can be difficult to navigate, especially for those newly registered RIAs. But they exist for a reason – to protect investors’ money.
While firms don’t intend to violate regulations, there are some compliance concerns that new RIAs may forget about. In fact, a recent SEC Risk Alert outlines observations from the Division of Examinations of compliance issues specifically among newly registered RIAs.
To help you avoid the most common pitfalls, here are seven regulatory compliance best practices for new RIAs.
Tip #1: Establish regulatory compliance policies and procedures early
When you’re a newly established RIA, the to-do list feels a mile long. However, setting your firm up for success means establishing policies and procedures as soon as possible. There is no “grace period” before you need to maintain a compliant firm. From the moment you start working with clients, you’re expected to follow the SEC’s standards of conduct and ethics.
Whoever serves as your chief compliance officer (CCO) should oversee the process of establishing written policies that align with the SEC’s most recent regulatory practices. Once the policies are established, the next challenge is to create procedures for putting your written policies into practice.
For example, if your CCO has a policy regarding recordkeeping, how will your team carry that out in day-to-day tasks? All team members need to be able to follow an established system for maintaining compliance, and your leadership team should have a way to periodically evaluate policy effectiveness.
Tip #2: Make sure everyone is aware of the regulatory compliance policies and procedures
Having policies and procedures in place is a great first step, now it’s time to put them into action. In order for your team members to follow these compliance policies, they need to be made aware of them — and reminded of them regularly.
Think about how you’ll communicate firm policies to current and new team members. What method will most effectively get the information across? An email, for example, could be overlooked or ignored.
A physical folder of written policies could be good for serving as a reference point, but few people will likely take the initiative to read the information from top to bottom. Consider having periodic team trainings where employees can learn about new compliance policies or procedure changes in an engaging and interactive way.
As you firm up your onboarding process, remember to include some initial compliance training at this stage as well for new employees. While they’ll likely need a refresher throughout their time with your firm, use this opportunity to set expectations moving forward.
Tip #3: Set a date for your annual compliance review and stick to It
Conducting an annual compliance review gives your firm the opportunity to reiterate common procedures and policies, identify potential areas of concern and ensure all employees are committed to maintaining compliance.
On-demand Webinar: The Ins and Outs of a Successful Annual Review
In addition, your CCO should use this opportunity to check current policies and procedures against any new laws or regulations that may have been established over the past year. With regulations evolving regularly, your firm will likely need to adapt to recent changes in order to keep compliance efforts up to date.
Tip #4: Make sure your disclosures cover everything they should
In the SEC’s recent Risk Alert, it was found that some disclosures “contained omissions or inaccurate information and untimely filings.” The agency specified that these omissions or inaccuracies were primarily related to adviser compensation and fees, operations and client services being offered.
Related: Top 10 Best Practices for RIA Compliance in 2023
If it’s been some time since you last updated your disclosures (or you’re starting from scratch), it’s easy to miss information or follow outdated regulatory standards. Be sure to regularly review your disclosures, especially when the SEC updates their rulings.
Tip #5: Check your marketing
The SEC’s new Marketing Rule had a compliance date of Nov. 4, 2022, which means it’s fairly new territory for all RIAs — especially if you are newly registered. As a part of this ruling, RIAs can expand their marketing efforts to include client testimonials, third-party endorsements, past-performance illustrations and more. However, the SEC has made it clear that RIAs must tell the truth in their advertisements and be prepared to substantiate claims.
As your firm continues growing, it’s important to keep your marketing collateral in check. Review recent regulatory changes to avoid sizeable fines or penalties.
Tip #6: Add compliance technology to your tech stack
In a recent survey, over half of the surveyed advisors reported that technology helped improve efficiency within their firm’s operations. As more tech platforms and AI-driven solutions enter the financial services space, it should come as no surprise that there are compliance-focused tools designed to make compliance and recordkeeping much more manageable for RIAs.
By leveraging these tools thoughtfully, even the smallest RIA firm can feel supported by a larger team throughout their compliance journey.
Tip #7: Work with a compliance consultant
Whether you’ve been an RIA for days or decades, compliance is complicated and ever-changing. It’s time-consuming to maintain and implement up-to-date compliance processes, but failing to do so can result in serious (and expensive) legal action.
A compliance consultant is a third-party compliance expert who can provide compliance guidance, advice, and ongoing support for small RIAs. Newly registered RIAs may find it worthwhile to work with a compliance consultant to help you start out on the right foot by developing and implementing robust policies.
Considering starting a your own RIA firm? Download The Ultimate New Registration Toolkit to help you navigate the intricacies of registration… from start to finish!
Becoming a newly registered RIA can open many doors to an exciting and prosperous future career. As you begin building your business, keep these compliance tips top-of-mind. If you’d like to learn more about how RIA in a Box offers 365-degree compliance support for advisers, book a demo today.