As a financial advisory firm, your clients trust you to make the best decisions in their interests. RIA compliance refers to the regulations you must follow to operate legally and ethically. It includes meeting standards set by the SEC or state regulators to maintain transparency and uphold best practices.
Staying compliant helps RIAs avoid penalties and build trust with clients in a highly regulated industry. This blog dives deeper into what is RIA compliance and what it really means.
What Is RIA Compliance?
RIA compliance refers to the rules and regulations that RIAs must follow. Those now starting an RIA should know these rules because they:
- ensure transparency
- protect investors
- maintain the integrity of services
The SEC and state regulatory authorities provide regulatory oversight for Registered Investment Adviser firms. Failing to follow regulatory standards can lead to fines, reputational damage, or loss of registration.
RIA Compliance Requirements
Common RIA compliance requirements include:
- RIAs must register with the SEC or relevant state authorities, depending on the assets under management and other variables.
- RIAs must act in the best interests of their clients; prioritizing client needs over personal gain.
- Full transparency and disclosure regarding fees, services, and potential conflicts of interest.
- RIAs must maintain accurate and detailed records of client communications, transactions, and advisory activities for compliance and auditing.
- RIA must establish and enforce a code of ethics for the standards of conduct for all employees.
- RIAs must implement policies to protect client confidentiality and comply with regulations such as the Gramm-Leach-Bliley Act.
- RIAs must develop and maintain to address potential business disruptions.
Create an RIA Compliance Checklist
Below is an example RIA compliance checklist to guide you:
- Adopt and enforce a written code of ethics for all supervised persons, as required by Rule 204A-1.
- Implement policies to prevent the misuse of material non-public information.
- Establish written policies designed to prevent, detect, and correct violations of the Advisers Act, in line with Rule 206(4)-7.
- Designate a qualified individual to oversee and administer compliance policies, as Rule 206(4)-7 mandates.
- Conduct yearly assessments of policies and procedures to ensure their adequacy as stipulated in Rule 206(4)-7.
- Develop plans for potential disruptions.
- File and regularly update Form ADV to disclose accurate information about services, fees, and potential conflicts in compliance with Rule 204-1.
- Maintain readiness for SEC examinations with accurate records and adhering to compliance programs.
- Comply with Rule 206(4)-5, which restricts political contributions to prevent “pay-to-play” practices.
- Keep true, accurate, and current records relating to the advisory business, as required by Rule 204-2.
- Seek to obtain the best price and execution for client transactions.
- Ensure contracts include necessary provisions, like client consent for assignment and no performance-based fees, by Section 205 of the Advisers Act.
- Adhere to Rule 206(4)-1, regulating marketing communications to prevent false or misleading advertisements.
Note, for state registered firms the advisers act rule number is not applicable. They would follow the mirrored rule in the state securities act for the state(s) they are registered in.
RIA Compliance Solutions
Specialized compliance solutions, including software tools and consulting services, streamline compliance management and reduce risk. Compliance software:
- continuously tracks regulatory changes
- organize and store compliance records
- automate tasks and reminders for compliance activities
Compliance consulting provides personalized guidance to address unique challenges, including:
- Crafting customized compliance policies
- Auditing support
- Reviewing internal documentation
- Educating staff on regulatory requirements and best practices
- Creating client correspondence
To learn more about what compliance solutions are offered by FocusPoint Solutions, contact us about your unique situation.