Managing Investment Adviser Compliance

Managing Investment Adviser Compliance

When To Use

• Preparing or updating Form ADV Parts 1, 2A (brochure), and 2B (brochure supplement) for initial registration or annual amendment
• Evaluating compliance with the SEC or state custody rule (Rule 206(4)-2 under the Advisers Act) [VERIFY state-specific custody requirements]
• Drafting, reviewing, or updating the firm's Code of Ethics under Rule 204A-1
• Conducting the annual compliance review required under Rule 206(4)-7
• Onboarding a new Chief Compliance Officer or restructuring the compliance program
• Responding to SEC examination findings or deficiency letters related to IA obligations

Inputs To Gather

• Firm profile: Registration status (SEC vs. state), AUM, number of clients, advisory fee structure, types of advisory services offered
• Current Form ADV: Most recent Parts 1, 2A, and 2B filings from IARD
• Custody arrangements: Qualified custodian details, any deemed custody (e.g., standing letters of authorization, trustee authority, related-person custodians)
• Code of Ethics: Existing code, access person list, personal trading pre-clearance logs, holdings/transaction reports
• Compliance calendar: Filing deadlines (annual ADV amendment within 90 days of fiscal year-end), surprise examination dates, custody audit schedule
• Prior examination history: Most recent SEC or state exam results, deficiency letters, and remediation status
• Policies and procedures manual: Current written supervisory and compliance policies under Rule 206(4)-7

Workflow

1. Map registration obligations

   • Confirm whether the adviser is SEC-registered (>$100M AUM threshold) or state-registered [VERIFY current AUM thresholds and exemptions]
   • Identify all states where notice filing is required
   • Verify IARD account status and CRD numbers for the firm and associated persons

2. Audit Form ADV accuracy

   • Compare Part 1 responses against current firm operations: ownership structure, disciplinary history, advisory activities, types of clients, compensation arrangements
   • Review Part 2A brochure for completeness of all 18 required items (advisory business, fees, performance-based fees, types of clients, methods of analysis, disciplinary information, etc.)
   • Confirm Part 2B supplements exist for all supervised persons providing advice
   • Flag any material changes requiring interim amendments (Item 4.C trigger)

3. Evaluate custody rule compliance

   • Determine if the firm has custody of client funds or securities (direct possession, authority to withdraw fees, trustee/POA roles)
   • Verify qualified custodian sends account statements to clients at least quarterly
   • Assess whether a surprise examination by an independent public accountant is required or if an exception applies (e.g., pooled investment vehicle audit, Form ADV-E filing) [VERIFY applicable exception conditions]
   • Review standing letters of authorization against the SEC's 2017 no-action conditions (seven safeguards)

4. Review Code of Ethics

   • Confirm the code addresses the four required elements: (a) standard of conduct, (b) compliance with federal securities laws, (c) reporting of personal securities transactions, (d) reporting of violations
   • Verify access persons are correctly identified and submitting initial/annual holdings reports and quarterly transaction reports within required timeframes (10 days / 45 days respectively)
   • Check pre-clearance procedures for IPOs and limited offerings
   • Confirm all supervised persons received a copy of the code and acknowledged receipt in writing

5. Conduct annual compliance review

   • Evaluate the adequacy of each compliance policy and procedure under Rule 206(4)-7
   • Document material compliance matters, any violations, and corrective actions taken during the review period
   • Prepare a written report summarizing findings for presentation to senior management or the board
   • Update the compliance calendar for the upcoming year

6. Remediate and document

   • Create a deficiency tracking log with responsible parties, deadlines, and resolution status
   • Amend Form ADV and re-file via IARD where required
   • Update written policies and procedures to reflect operational changes
   • Retain all compliance records per the books and records rule (Rule 204-2): five years, first two in an accessible place [VERIFY electronic storage requirements]

Output

• Compliance status report: Summary of Form ADV accuracy, custody rule adherence, and Code of Ethics sufficiency with pass/fail/remediation-needed ratings per category
• Deficiency tracker: Table listing each gap, applicable rule reference, severity, assigned owner, deadline, and current status
• Amended Form ADV drafts: Redlined changes to Parts 1, 2A, and 2B as needed
• Code of Ethics update: Revised code with tracked changes and distribution acknowledgment log
• Annual review memorandum: Written summary of the Rule 206(4)-7 review with findings and recommendations

Quality Checks

• Every regulatory citation references the specific Advisers Act rule or SEC release number
• All AUM thresholds, filing deadlines, and reporting windows are marked [VERIFY] where they may have changed
• Custody analysis distinguishes between actual custody and deemed custody with specific factual basis
• Access person identification uses the Rule 204A-1 definition (not an informal or overbroad list)
• Deficiency tracker entries each link to a specific rule or policy provision
• Annual review memorandum addresses adequacy of policies — not just whether violations occurred
• No compliance opinion is rendered; output frames findings as assessment subject to legal counsel review