The RIA compliance checklist: Meeting your regulatory obligations

19 December 2024 | Americas | Articles

Becoming a newly registered investment adviser (RIA) is an exciting milestone, but it comes with significant compliance responsibilities. A well-structured RIA compliance checklist can help ensure you meet these obligations effectively and build a strong foundation for the future. And even if you’ve been operating for a while, it’s always good practice to check your list twice.

The basics of rule 206(4)-7 compliance

A critical element of your RIA compliance checklist is understanding and implementing Rule 206(4)-7 under the Investment Advisers Act of 1940. This rule requires the adoption of written policies and procedures designed to prevent federal securities law violations. Your checklist for compliance with Rule 206(4)-7 should include:

1. Conducting a risk assessment: Identifying potential risks specific to your firm’s operations and vulnerabilities.
2. Developing policies and procedures: Tailoring your compliance policies to address areas such as portfolio management, trading practices, and recordkeeping.
3. Training staff: Ensuring employees are trained and adhere to your compliance framework.
4. Monitoring and testing: Regularly reviewing the effectiveness of your policies, addressing gaps as they arise.
5. Documenting your efforts: Maintaining thorough records of compliance activities, including training sessions, reviews, and corrective actions.
6. Performing an annual review: Rule 206(4)-7 requires a formal annual evaluation to ensure policies remain effective and relevant.

Reporting obligations for RIAs

Meeting regulatory reporting requirements is another essential part of your RIA compliance checklist. On an annual basis, you’ll need to address several key forms and disclosures:

1. Form ADV Part 1: Filed electronically on the Investment Adviser Registration Depository (IARD) system, providing details about your firm, including structure, AUM, and investment strategies.
2. Form ADV Part 2 (Brochure): Shared with clients to disclose your services, fees, conflicts of interest, and personnel background.
3. Form 13F: Filed if your firm manages over $100 million in certain securities.
4. Form 13G: Submitted if your firm acquires more than 5% of a class of equity securities in a public company.
5. Form PF: Providing regulators with detailed information about private funds if applicable.

Essential client disclosures

Transparency is a cornerstone of RIA compliance. Your RIA compliance checklist should include the following client-facing disclosures:

1. Form ADV Part 2A (Appendix 1): Outlining the qualifications of supervised personnel who interact with clients.
2. Form ADV Part 2B: Not required to be submitted in IARD but must be maintained and provided to new investors as well as to all parties if significant changes have been made to any of the information
3. Form 13-F2 (SHO): Disclosing your short position and short activity reports, ensuring transparency in securities trading.
4. Form 13H Large Trader filing: if a person or entity meets certain trading activity thresholds in a daily or monthly period.
5. Privacy policy: Explaining how you manage and protect client information.

If your firm operates in multiple states, you must also comply with Blue Sky laws to ensure proper state-level registration or notice filings.

Preparing for SEC examinations

The SEC may conduct a new registrant examination within your first 18 months of operation and ay any point thereafter. Your RIA compliance checklist should include preparation steps, including maintaining up-to-date documentation to facilitate a smooth audit process.

Ongoing compliance: Staying current

Compliance is for life. Your RIA compliance checklist should incorporate steps for staying current with evolving regulations:

• Updating Form ADV: Amend promptly to reflect changes in your firm’s operations, personnel, or strategies.
• Performing annual amendments: Submit updates to Form ADV within 90 days of your fiscal year-end.
• Review policies regularly: Adapt your compliance program to align with regulatory changes and industry best practices. Always test how well

How we can help

Our team of compliance experts can help you create a customised RIA compliance checklist, conduct annual reviews, and prepare for regulatory examinations. Longer term we work with clients on an ongoing basis to both maintain and test compliance programs.