Regulatory compliance is widely recognized as important among Advisors. But a recent survey found that 37% struggle to find the time for an annual compliance review.
The consequences for this can be significant: one RIA was recently forced to pay a civil penalty of $6.5 million for failing to properly monitor whether its employees were following the firm’s compliance policies.
The following article helps you avoid such a fate, with a clear checklist to help you achieve and maintain compliance across all areas of your business.
Three Steps to Maintain RIA Compliance
The compliance landscape is constantly evolving and many Advisors struggle to keep up with changing requirements. However, the following steps will help you keep your firm safe while also improving processing times:
1. Prepare for Changes in Advance
The Securities and Exchange Commission (SEC) will typically follow a few steps before a new requirement is introduced:
- Initial Announcements: The new regulation proposal is published.
- Consultation Period: The SEC seeks feedback on the regulation.
- Final Period: This feedback is used to make any necessary revisions before a “final” version of the regulation is published.
- Implementation Period: There is a final period during which Advisors can take steps to be ready for compliance from day one.
Advisors should ensure they follow every step of this process, giving them plenty of time to understand the new requirements, update their policies, and put any new measures or tools in place to make complying with the new rules easier.
2. Run Regular Compliance Check-Ins
Advisors should create a regular cadence to assess their compliance practices and make any necessary changes. This should focus on:
- Compliance risks: Are there upcoming changes that must be prioritized to ensure compliance?
- Best practices: Does the most recent regulatory enforcement suggest any changes or best practices you can adopt?
Some Advisors will make this a weekly meeting, allowing them to continually assess feedback and stay ahead of regulators.
3. Leverage Your RIA’s Tech
Many RIAs offer technology that can help support and enhance your compliance program. For example, at RFG Advisory we provide:
- Marketing Content Compliance: Our Saifr Scan checks marketing content for potential violations or risks.
- Marketing Compliance Guide: We publish and update a complete guide to marketing compliance for Advisors.
- Industry Updates: The “RFG Insider” compliance page provides insights and updates to help Advisors who partner with us to understand changing regulatory requirements.
The Complete RIA Compliance Checklist
The following checklist breaks Advisors’ key compliance requirements down into clear categories:
1. Sales and Marketing Compliance
Relevant regulations: SEC Marketing Rule (Rule 206(4)-1) and FINRA Rule 2210
Advisors must ensure:
- All performance figures (e.g., ‘Our clients achieve [XYZ]’) are supported by documentation and evidence.
- All partnerships and financial dealings with third parties (e.g. Independent Advisor Reviews) are publicly disclosed
- All statements in marketing materials are factual, with no misleading or ambiguous statements
- All advertisements are designed to include a clear disclosure of the financial risks associated with your service.
- Any conflict of interest to the intended audience is clearly disclosed within marketing materials
- All advertising and marketing materials are put through a due diligence process, with full documentation proving the process has been followed
2. Client Agreements and Disclosures
Relevant regulations: SEC Investment Advisers Act and FINRA Rule 2111
Advisors must ensure:
- All client contracts are kept up to date and retained
- A complete profile is maintained for every client, including their financial situation and investment objectives
- Form ADV Part 2 (a disclosure document containing information about your business, fees and conflicts of interest) is provided to every client and updated annually
- Clients have acknowledged receipt of required disclosures
3. Record Keeping and Disclosure
Relevant regulations: SEC Rules 204-2 and 206(4)-7
Advisors must ensure:
- All written communication with clients is documented and retained
- All financial records (including balance sheets, income statements, and cash flow statements) are retained
- A comprehensive set of compliance policies and procedures is kept and regularly updated
- An annual compliance review is completed, and policies and procedures are updated wherever necessary
Outsourcing Compliance: Is it Worthwhile?
The above checklist is exhaustive and demonstrates the scale of regulatory requirements you face. Most Advisors already feel they don’t have enough time to cover their daily tasks and engage deeply with clients – let alone take care of all these compliance duties.
This helps explain why a growing number of Advisors are outsourcing their compliance tasks. While some will fear losing control of such a vital business function, Advisors that receive external support report:
- Financial savings: The cost of partnering with a third-party is generally less than the expenses accrued through complicated internally operated compliance programs.
- Time savings: Advisors often save several hours per week by avoiding tiring manual compliance processes – freeing them to spend more time with their clients.
- Performance improvements: Nearly three-quarters of those that outsource say doing so improved the quality of their compliance program, while the extra time they have is to focus on clients enhances the quality of their service.
Receive Comprehensive Compliance Support with RFG Advisory
RFG Advisory provides the first fully supported independent model for Advisors. Advisors that partner with us gain comprehensive support across:
- Daily operations
- Hiring and managing employees
- Marketing and branding
- Technology
As well as extensive compliance services, which are one of the factors contributing to their growth in the industry.
Want to explore how we could help you take control of your compliance program?