Worried About An Enforcement Action Due to Compliance Issues? TAKE THE ASSESSMENT

The SEC’s New Risk Alert for Newly Registered RIAs

If you’re a financial advisor who recently registered as an investment advisor or you’re considering taking the leap, you need to be aware of some startling information. The SEC just released a risk alert that should make every newbie RIA sit up and pay attention.

The SEC has been ramping up examinations of newly registered investment advisors, and they’ve been finding some glaring issues. As experienced SEC compliance attorneys who have guided countless financial advisors through SEC exams, these deficiencies don’t surprise us. But if you’re new to the RIA world, you need someone who has been battle-tested to help you avoid turbulent regulatory waters.

Inadequate Compliance Procedures Sink Many New RIAs

One of the biggest trouble areas the SEC identified is lax compliance policies and procedures. Most advisors just want to focus on working with clients, growing their practice, and keeping their heads above water as they make the transition to full independence. The last thing you want to worry about is updating some dusty manual that sits gathering cobwebs on a shelf.

But your policies and procedures serve as your firm’s constitution – your rules of governance making sure all those compliance i’s are dotted and t’s crossed. Without practical, customized policies and procedures guiding your daily operations, you’re headed for big trouble.

Too many new RIAs rely on off-the-shelf templates that check the box but have no grounding in the firm’s actual business. It’s like trying to fit size 12 feet into glass slippers – an uncomfortable situation destined for disaster.

These cookie-cutter documents also lack meaningful procedures – clear instructions for who is supposed to do what and when. Lots of lovely policy statements, though. But words on paper don’t mean much unless your team knows exactly how to follow through.

Adding insult to injury, many newly registered RIAs barely staff their compliance efforts. They expect one person wearing multiple hats to effectively monitor a growing book of business. That’s a losing battle.

And perhaps most concerning is that few new firms have solid business continuity and succession protocols in place. What happens if the founder has a heart attack …or worse? Who will step in to make sure clients are taken care of? Most RIAs just cross their fingers and hope their health and stamina outpaces time.

Do any of these scenarios hit uncomfortably close to home? Well, understand that you’re not alone. Many new RIAs fall into these risk areas innocently – seeking to serve clients well without always realizing the regulatory landmines surrounding them.

Improper Disclosures and Statements Undermine New Advisory Firms

Another area the SEC scrutinizes closely is advisor disclosures – those pesky ADV forms and other client communications intended to shine light on potential conflicts of interest.

SEC examiners have found all sorts of inaccuracies and missing information on new RIA disclosures:

  • Not fully disclosing fees and costs borne by clients
  • Failing to describe investment strategies, models, and portfolio management styles
  • Underreporting assets under management
  • Not revealing potential conflicts around compensation, affiliations, and client referrals

Some RIAs have even let key credentials lapse or erroneously touted third-party recognitions that are long outdated. Misstatements and outdated claims may seem harmless on the surface – no one wants to highlight past failures or lost status. But in the eyes of the SEC, inaccurate disclosures undermine client trust if not rectified.

Marketing Messages Also Under Scrutiny

Investment advisors registered with the SEC cannot simply say whatever they want in promotional materials and sales pitches. But, the SEC says some newly registered RIAs have ignored this distinction in their enthusiasm to attract clients.

Those campaigns touting your unmatched greatness can come back to haunt you. The SEC looks skeptically at unsubstantiated claims about being “the best advisor,” guaranteed returns, or other flashy hype.

Maybe early on, you can get away with some promotional puffery absent careful controls. But eventually, the SEC will catch up to you. And their examiners readily identify and address non-compliant marketing content used by advisors during evaluations.

Contact An SEC Compliance Lawyer Before It’s Too Late

If reading this risk alert feels like glimpsing your future in a crystal ball, don’t panic. Many newly registered RIAs have gone before you, escaping enforcement actions and building thriving, compliant practices. But they all have one thing in common – partnering with battle-tested experts.

So, if you see yourself in any of these scenarios, don’t go it alone for one more day. Give the compliance nerds at My RIA Lawyer a call right now.

We live for this stuff and have helped countless advisors in your shoes get buttoned up the right way. Why keep losing sleep or letting that nagging feeling of uncertainty weigh you down? Contact us now, and we’ll quickly get you crossing regulatory hurdles. Then you can focus on clients and finally have confidence your compliance foundation is secured.

Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

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