How to Comply with RIA Regulations

Posted by Mark Piquette on July 9, 2014

The regulatory environment for RIAs is in a state of constant evolution. RIAs are still trying to navigate the new rules set forth by Dodd-Frank, such as the so-called “red flag” rule, aimed at reducing the risk of identity theft, and there is increasing pressure for the SEC to adopt a uniform fiduciary standard. In such a changing landscape, RIAs need to know what to expect of a regulatory exam or audit and how to ensure they are complying with all laws. Gregory Jones, Chief Compliance Officer for Trust Company of America, explained exactly that in a recent Genius Session on audits.

The frequency of exams by state regulators varies by state, but most advisors can expect an audit every three to six years. Visits from the SEC occur about once every nine years. Earlier this year, the SEC announced that it is prioritizing visiting firms that have never been examined. There are several key areas of focus, according to Jones:

  • Compliance program: Is your compliance program being reviewed annually and regularly updated? Are you following your own procedures?
  • Books and records: Firm and client records are both subject to regulatory scrutiny.
  • Portfolio management process: Do you treat your clients equally? Are some given preferential treatment in trading?
  • Marketing and advertisements: Regulators are especially looking for misleading advertisements related to performance numbers. Advisors also need to make accurate representations of their fiduciary obligation.
  • Custody: Do you hold funds for clients longer than allowed? Are you mishandling a trust in some way?

Common Deficiencies:

Recently, regulators have been more focused on disclosures of conflict of interests. wrap fee programs, use of solicitors, fee billings and disclosures and privacy. Due to higher standards and increased scrutiny across the board, the number of deficiencies cited per exam has jumped in recent years, says Jones. The most common areas of deficiency concern books and records, registration—particularly errors in Form ADV—disclaimers on firm websites, privacy disclosures and portfolio management.


Jones recommends several technology solutions that can mitigate the risk of deficiencies. An electronic filing system can make files easier to track and search. Email storage is useful in ensuring that all client communications are archived in the event of an audit. An electronic trading system, like TCAdvisor, reduces the risk of portfolio management bias (whether deliberate or accidental) and can help to automate processes.

The most important step for advisors to take, though, is to be educated on the laws so they can know how to be compliant. For information on what to expect in a regulatory exam, view the Genius Session or call Trust Company of America at 303-705-6000.

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