States Toughening Up and Cracking Down on RIAs

In 2012, states expanded their oversight of registered investment advisers (“RIAs”) from those with $25 million in assets, to those with $100 million or less.  Prior to 2012, the Securities and Exchange Commission (“SEC”) had been responsible for overseeing these RIAs.

Since taking on the oversight of these additional RIAs, state securities regulators have seen a sharp increase in deficiencies actions.  A new report from the North American Securities Administrators Association(“NASAA”) recounted how Investment Adviser (“IA”) exams from 2011 to 2013 increased by 37% (from 825 to 1,130), while the number of deficiencies found during such exams surged by 83% (from 3,543 to 6,482).  To make these numbers even more eye-popping, one must bear in mind that the staggering number of state deficiencies for 2013 (6,482) only represent the first six months of this year.

While it unclear exactly how many of these violations result from IA firms formerly registered with the SEC and are now subject to state oversight, it is clear that states are conducting thorough examinations, and are finding deficiencies in a multitude of areas.  According to NASAA’s report, the top categories for deficiencies were:

  • Books and records – i.e., missing suitability documentation, client contracts, disclosure brochures, etc.;
  • Registration deficiencies – i.e., incorrect or incomplete Form ADV filings, untimely filing of amendments, etc.;  and
  • Contract deficiencies – i.e., not properly executed, missing fee and fee formula disclosures, etc.;

There were also several deficiencies regarding regulations concerning privacy, brochure delivery, advertising, fees, supervision and custody.  These findings presented by NASAA show that importance of understanding and adhering to those state rules and regulations that apply to your RIA firm.  Failure to do so may result in deficiency actions, penalties, fees and even criminal enforcement actions. 

For further information on this, or other related topics, please contact us at or (619)298-2880.  

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