12 Ways RIAs Can Stay on Track with Compliance
Registered Investment Advisors are subject to a patchwork of regulations, and must stay aware of the latest updates, both to protect clients and reduce risk.
The guide identifies the pillars of high-performing content, sharing practical, actionable insights such as checklists and best practices.
Core Foundations of RIA Compliance
Each RIA must develop the minimum components to register according to federal law under the Investment Advisers Act and file the Form ADV.
This includes services, fees, conflicts of interest, and any disciplinary action, which must be reviewed annually.
Writing and implementing a compliance manual, including a code of ethics and procedures for preventing violations and for governing personal trading for all access persons, and designating a Chief Compliance Officer (CCO) to oversee and be fully responsible for compliance.
For regulatory duties for investment advisors, fiduciary standards demand acting in clients' best interests, with full transparency on material facts.
Review official guidance to align practices with these core obligations early in program development.
Develop Tailored Policies and Procedures
Adopt specific policies and procedures for trading, onboarding clients, valuations, and fees, rather than generic policies.
Review and revise the policies annually to adapt to changing privacy regulations and internal operational practices.
Provide required ethics, cybersecurity, anti-money laundering, and recordkeeping training to all levels of employees, with documented results of training and quizzes to show a commitment to continuous education and cultural reinforcement.
Policy Review Checklist
- Assess trading and allocation fairness.
- Update privacy safeguards for data handling.
- Revise fee disclosure protocols.
- Incorporate marketing rule amendments.
Master Recordkeeping and Supervision
Keep all correspondence, trading instructions, publications issued to clients, and financial records for at least five years electronically in a tamper-proof format.
Daily/weekly checks such as sampling transactions and reviewing emails, can help identify abnormal occurrences in a timely manner.
Test for off-channel communications (e.g., personal text messages, private apps for messaging).
Reconcile client holdings with statements monthly to avoid billing errors and to develop an audit-ready position.
Supervision also includes branch offices and supervised persons, and outlier reports for exceptions in performance or activity.
Conduct Rigorous Annual Reviews
Conduct annual reviews of Form ADV compliance filings, internal policy assessments, employee interviews, exception reports, and risk mapping.
Pay particular attention to fiduciary breaches, undisclosed conflicts of interest, and custody verification.
For deficiency items, determine timelines, owners, and follow-up metrics.
For newer firms, conduct mock examinations to practice regulatory inquiries and responses, and to discover missing documentation or gaps.
Key Review Components
- Employee compliance attestations.
- Third-party service audits.
- Technology control testing.
- Client complaint analysis.
Ensure Advertising Compliance
Create advertising, promotional materials, sales presentations, etc., that are not misleading.
Do not cherry-pick results or make unsubstantiated claims.
Get advertising pre-approved, and maintain substantiation files for any claims made.
Fees, conflicts, and risks should be prominently disclosed in client-facing documents.
The marketing material is audited quarterly to maintain credibility and reduce enforcement risk.
Bolster Cybersecurity Defenses
Develop incident response plans.
Establish clear escalation paths.
Report material breaches in accordance with applicable law.
Monitor for threats and alerts using AI-based tools, such as those developed by Luthor.ai.
Conduct phishing tests, penetration tests, and data recovery exercises biannually.
Encrypt sensitive data and use network segmentation to limit the impact of a breach within privacy laws.
Mitigate Conflicts of Interest
Map all investment decision-making conflicts (revenue sharing, proprietary products) and reduce them via disclosures or process barriers.
Update client brochures promptly to exactly reflect these mitigations.
Access persons must have personal trades pre-cleared and abide by black-outs around client trades, and file quarterly reporting and attestations, to foster transparency and deter insider usage.
Fortify Anti-Money Laundering Measures
Customs must conduct complete customer due diligence (including watchlist screening), and monitor accounts, transactions, and business relationships throughout the customer lifecycle for suspicious activities.
AML: Customize the AML program to client types and jurisdictions, assess risk on an annual basis, and supplement staff training to identify red flags such as unusual wire transfers and structuring.
Safeguard Client Assets via Custody Rules
Use qualified custodians for client securities.
Notify clients about custodial arrangements and statement access.
Schedule surprise examinations by independent public accountants at least annually.
Conduct monthly reconciliations and resolve discrepancies in a timely manner.
The advisory contracts must define any direct access to assets.
Harness Technology for Streamlined Oversight
Use surveillance platforms to capture communications and discover exceptions automatically, reducing the need for human involvement.
Custom workflows prioritize alerts that are most at risk.
All tools should support immutable audit trails for exam defenses.
Firms that leverage technology have fewer violations and grow faster.
Oversee Third-Party Relationships
Conduct vendor due diligence during onboarding and annually.
Ensure vendor contracts include audit rights and service-level agreements (SLA).
Regular monitoring detects service deficiencies early.
Incorporate third-party risks in enterprise-wide risk assessments, and have plans in place to deal with them.
Prepare Proactively for Examinations
Have an exam response playbook with critical documents and role assignments that is reviewed every six months.
Conduct full mock exams to test document generation and interview procedures.
Maintain a compliance calendar for filings, reviews, and other deadlines.
Look at exams as a way to assess the strength of your program.
Building a Resilient Compliance Framework
Strategies can be layered with a firm-wide risk assessment identifying the firm's priorities based on AUM and services.
Smaller RIAs typically focus on documentation and training.
Growing RIAs typically focus on technology and AML.
The program must be flexible and operationally embedded to ensure sustained protection over time, fulfilling compliance obligations, and providing value beyond compliance, while increasing customer trust.