Download: 2013 IA Examination Report (pdf)

WASHINGTON, D.C. (October 7, 2013) – State securities regulators report little difference in the type or frequency of deficiencies between existing state investment and those advisers who switched from federal to state oversight as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the North American Securities Administrators Association (NASAA) said today.

“This demonstrates that states and NASAA worked hard to inform and educate switching advisers before and during the switch,” said Heath Abshure, NASAA President and Arkansas Securities Commissioner.

Under the Dodd-Frank Act, about 2,100 mid-sized investment advisers with assets under management between $30 million and $100 million switched from federal to state oversight earlier this year. More than one-third of the investment advisers examined by state securities regulators as part of NASAA’s 2013 Coordinated Examination Program had assets under management more than $30 million.

Every two years, state securities examiners voluntarily report sample data from their investment adviser examinations as to NASAA’s Investment Adviser Operations Project Group. “Using this sample data helps NASAA identify common regulatory deficiencies and recommend best practices that investment advisers should consider to minimize the risk of regulatory violations,” Abshure said.

Abshure said sample examination data was reported by 44 state and provincial securities examiners between January and June 2013. The 1,130 reported examinations uncovered 6,482 deficiencies in 20 compliance areas, compared to 3,543 deficiencies in 13 compliance areas identified in a similar 2011 examination of 825 investment advisers.

The top five deficiencies for advisers with less than $30 million in assets under management involved books and records, registration, contracts, privacy and brochure delivery. The top five deficiencies found among investment advisers with more than $30 million in assets under management involved: books and records, registration, contracts, advertising and fees. The examinations also revealed that:

  • Top books and records deficiencies: suitability documentation, missing client contracts, and trial balance/financial statements.
  • Top registration deficiencies: Form ADV— Part 1 vs. Part 2, fee structures, and services provided.
  • Top contracts deficiencies: improper execution, fees, and fee formula.
  • Top privacy deficiencies: annual delivery of privacy policies, initial delivery of privacy policies, no privacy policy.
  • Top brochure delivery deficiencies: annual offerings, update/material change, and initial deliveries.

Deficiencies also were found in advertising, fees, supervision, custody, financials, investment activities, and unethical practices.

Based on the 2013 sample data, NASAA recommends the following “Best Practices” as a guide to assist advisers in developing compliance practices and procedures.

  • Prepare and maintain all required records, including financial records. Back-up electronic data and protect records. Document checks forwarded.
  • Review and revise Form ADV and disclosure brochure annually to reflect current and accurate information.
  • Review and update all contracts.
  • Prepare and distribute a privacy policy initially and annually.
  • Deliver disclosure brochure initially and annually as required.
  • Review all advertisements, including website and performance advertising, for accuracy.
  • Calculate and document fees correctly in accordance with contracts and ADV.
  • Prepare a written compliance and supervisory procedures manual relevant to the type of business to include business continuity plan. Assess and update periodically.
  • Implement appropriate custody safeguards, as applicable. Pay close attention to direct fee deduction invoices.
  • Keep accurate financials. File timely with the jurisdiction. Maintain surety bond if required.
  • Make sure client’s investment policy and suitability information are current.
  • Disclose soft dollars or benefits received.
  • Prepare and maintain current client profiles.
  • Review solicitor agreements, disclosure, and delivery procedures.


For More Information:
Bob Webster | Director of Communications


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