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NASAA Provides Guidance on Top IA Deficiencies in State Examinations

The North American Securities Administrators Association (“NASAA”) recently released a set of examination findings which identify the common compliance deficiencies for state registered investment advisers.The press release listed the top deficiencies revealed in a series of coordinated state examinations of 825 investment advisers.  To illustrate their findings, NASAA has produced a presentation that includes a number of slides that provide detailed information on common deficiencies as well as a series of recommended best practices to minimize the risk of regulatory violations.The report reveals that NASAA uncovered 3,543 deficiencies as compared to 1,887 deficiencies identified in a 2009 review of 458 investment advisers.  The top five categories with the greatest number of deficiencies involved registration, books and records, unethical business practices, supervision, and advertising. In fact, the examination findings revealed that a whopping 59.9% of state-registered investments were deficient in some aspect of their registration obligations.In addition to registration, NASAA cited the following problem areas:
  • Form ADV Disclosure: Top deficiencies were inconsistencies between the information contained on Form ADV Parts 1 and 2
  • Failure to maintain and safeguard client records
  • Missing client agreements, altered documentation and signing blank documents
  • Lax supervision, especially over remote offices
  • Advertising misstatements involving websites, client correspondence, business cards and the misuse of “Registered Investment Adviser” and “RIA”
State securities regulators, such as the California Department of Corporations, will likely use this information to focus their exams on areas that have proven to need improvement.  Accordingly, investment advisers should rigorously review their compliance policies and procedures to increase the likelihood that they are in full compliance with the areas identified in the NASAA examination report.For additional information please contact Brent Cunningham, Associate Attorney by email at [email protected] or by phone at (619) 298-2880.

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