Findings show decrease in the top reported violations from the previous biennial sweep.

WASHINGTON, D.C. – (September 11, 2023) – A series of coordinated examinations of state-registered investment advisers by state securities examiners identified top firm policy and practice deficiencies the North American Securities Administrators Association (NASAA) announced.

The sample data from state securities examiners is collected every two years and reported voluntarily to NASAA’s Investment Adviser Operations Project Group. State securities regulators have regulatory oversight responsibility for investment advisers with assets under management of $100 million or less. The examination results were released at NASAA’s 2023 Fall Annual Meeting.

“The results of this multi-state coordinated initiative provide valuable insights into compliance practices of the investment adviser industry and highlight areas for improvement,” said NASAA President Andrew Hartnett. “Advisers should use this information to review their compliance practices with an eye toward improving services for their clients.”

Among the asset-managing investment advisers examined in this year’s coordinated examinations, 50% managed $30 million or less in assets. Additionally, 72% of the state-registered investment advisers examined were one-person firms. Approximately 34% of the exams conducted were on investment advisers for whom this was their first state exam. Of the state-registered investment advisers examined, 7% conducted other business activities such as insurance.

Ranked by the number of deficiencies, registration (23%), books and records (17%), and supervision and compliance (16%) were listed as the most frequent shortcomings. Contracts (12%) and fees (6%) rounded out the top five leading areas of deficiencies identified by examiners.

The data revealed contract-related violations included those involving performance fees, hedge clauses and fee miscalculations. Privacy violations were identified as the eighth most common violation in this year’s examination results, with the majority of violations due to lack of evidence of delivering privacy policies to clients, either initially or on an annual basis.

While overall books and records violations were down compared to the last investment adviser coordinated exam, state securities examiners still found a significant number of violations related to client suitability information.

“Unfortunately, there were a number of deficiencies related to state investment advisers not having policies and procedures for suspected financial exploitation,” said Alisa Goldberg, Chair of the Investment Adviser Operations Project Group and Director, Florida Division of Securities. “Our hope is that this data will result in changes that increase investors’ confidence in their advisers and better protect them from investment fraud.”

The examination report is available on NASAA’s website: https://www.nasaa.org/wp-content/uploads/2023/09/2023-Investment-Adviser-Coordinated-Exams.pdf.

– NASAA–

About NASAA:

Organized in 1919, the North American Securities Administrators Association (NASAA) is the oldest international organization devoted to investor protection. NASAA is a voluntary association whose membership consists of the securities regulators in the 50 states, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, the 13 provincial and territorial securities regulators in Canada, and the securities regulator in México. For more information, visit www.nasaa.org. 

For More Information:

Fred Baldassaro, Director of Communications
fbaldassaro@nasaa.org | 202-737-0900

Karen Grajales, Communications and Investor Outreach Manager
kgrajales@nasaa.org  | 202-737-0900