Coordinated state exams conducted by members of the North American Securities Administration Association (NASAA) for 2015 uncovered the top registered investment adviser (RIA) compliance deficiencies across 20 categories. Last week, we discussed investment adviser compliance deficiencies related to advertising, specifically in regards to untrue or misleading statements or omissions, testimonials, insufficient website disclaimers, and misuse of the “RIA” and “IAR” acronyms. In this week’s installment, we cover another common RIA compliance deficiency category: brochure delivery. The 2015 latest report shows that of the 1,170 investment advisory firms examined in 2015, 16.7% of all firms with assets under management (AUM) examined had at least one brochure delivery-related regulatory deficiency. This figure has decreased compared to the 18.3% reported in 2013. Brochure delivery is a relatively new deficiency category and was not on the list of top deficiencies during prior reports.
According to the 2015 report, nearly 20% of RIA firms with AUM less than $30 million had at least one such deficiency. This is significantly higher than the roughly 10% of RIA firms with AUM greater than $30 million that had brochure delivery-related deficiencies. Also notable, about 20% of firms with only one investment adviser representative (IAR) had at least one brochure delivery-related deficiency, and around 17% of firms with more than one IAR had at least one such deficiency.
The Chief Compliance Officer (CCO) of every investment adviser needs to be aware of the top brochure delivery-related compliance deficiencies. In 2015, the top issues were:
- Annual offering / delivery (63.3%)
- Update / material change delivery (23.1%)
- Initial delivery (13.6%)
In 2013, the top issues were:
- Annual offering / delivery (49.3%)
- Update / material change delivery (20.7%)
- Initial delivery (13.7%)
Alhough there was a slight decrease in the frequency of brochure delivery-related deficiencies between 2013 and 2015, it appears that the frequency of investment advisory firms with issues related to the annual offering and delivery of the brochure has actually increased compared to the prior study. Thus, 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. 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 and to ensure that the RIA compliance service the firm utilizes properly assists with this requirement.