Last month, the North American Securities Administrators Association (“NASAA”) released its 2017 Investment Adviser Coordinated Examinations Report. The biannual report is a must read for registered investment adviser (“RIA”) firms. As RIA compliance consultants, we recommend that the Chief Compliance Officer (“CCO”) of all investment advisory firms review the regulatory exam summary report to determine if any compliance changes need to be implemented at their firm.
In this week’s installment of our break-down of the new 2017 report, we focus on one of NASAA’s most common RIA regulatory compliance deficiency categories: registration. Of the 1,227 investment advisory firms examined in 2017, 54.3% of all firms examined with regulatory assets under management (“AUM”) had at least one registration related regulatory deficiency. In total, there were 903 registration-related deficiencies cited across all firms which were audited. In general, about three quarters of firms audited had a registration-related deficiency.
Unlike books and records related deficiencies, registration related deficiencies are up significantly from 2015 when 41.5% of RIA firms with regulatory AUM had registration-related deficiencies. In the table below you can see the changes year over year. Since 2009, registration related deficiencies have trended downwards until this year. The table below highlights the changes over the last 10 years of reports:
In 2017, the top 5 registration-related deficiencies were:
- Form ADV – Inconsistencies between Part 1 and Part 2 (14.8%)
- Other Issues (12.3%)
- Form ADV – Fee structure (10.6%)
- Timely filing of amendments (7.6%)
- Form ADV- Business Description (7.6%)
In 2015, the top 5 registration-related deficiencies were:
- Form ADV – Inconsistencies between Part 1 and Part 2 (17.4%)
- Timely filing of amendments (12.8%)
- Form ADV – Fee structure (10.6%)
- Form ADV – Services provided (9.1%)
- Form ADV – Business Description (8.1%)
It’s evident that all RIA firms need to take a step back and ensure that the firm’s Form ADV Part 1 and Part 2 are proper aligned and do not conflict with one another. Year over year, Form ADV inconsistencies between the Form ADV Part 1 and Part 2 top the list of registration-related deficiencies. In addition, timely filing of amendments, Form ADV fee structure, and Form ADV business description continue to make the list of most common registration-related deficiencies. All investment adviser firms, even those registered for the first time in 2017, are required to complete the annual RIA registration renewal process.
Be sure to also check out our past blog post on the top investment adviser registration compliance deficiencies from the 2015 NASAA report.