In 2013, members of the North American Securities Administration Association (NASAA) conducted exams across the country in which auditors uncovered the top registered investment adviser (RIA) compliance deficiencies across 20 categories in 44 jurisdictions. 1,130 examinations were reported and 6,482 deficiencies were exposed across all categories. In addition to the top compliance deficiencies we discussed in our earlier blog series, the 2013 NASAA investment adviser examination report also found a number of other deficiencies related to firms that conduct specific activities. For example, last week we discussed performance advertising deficiencies.
In this week’s segment, we’ll be zeroing in on deficiencies related to RIA firms that provide financial planning services. Many advisory firms offer financial planning as a primary or ancillary service. It’s important to note that offering financial planning services does lead to some additional regulatory requirements. The 2013 NASAA report found that 8.3% of all RIA firms that offer financial planning services had at least one financial planning-related deficiency.
The top financial planning-related deficiencies in 2013 were:
- No written planning contract (28.6%)
- Inadequate client contract (21.4%)
- Inadequate disclosure of planning fees (21.4%)
- Unreasonable or excessive fees (7.1%)
- 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 having written contracts with each financial planning client that clearly articulate all fees.