NASAA Posts Update on Investment Advisors and Compliance Deficiencies, Reports Decline in Top Violations

NASAA (North American Securities Administrators  Association) says there has been a decline in “top reported violations” in regard to the most recent state registered investment advisor review. NASAA collects the data every two years provided by state securities regulators.

NASAA President Andrew Hartnett says the report provides valuable insight into compliance practices, and advisors should use the information to review their compliance practices.

While NASAA said that overall, books and records violations were down compared to the last exam, state securities examiners still found a significant number of violations related to client suitability information.

Among the asset-managing investment advisers examined in this year’s coordinated examinations, 50% managed $30 million or less in assets. At the same time, 72% of the state-registered investment advisers examined were one-person firms.

Approximately 34% of the exams conducted were on investment advisers for whom this was their first state exam. Of the state-registered investment advisers examined, 7% conducted other business activities such as insurance.

Ranked by the number of deficiencies, registration (23%), books and records (17%), and supervision and compliance (16%) were listed as the most frequent shortcomings. Contracts (12%) and fees (6%) rounded out the top five leading areas of deficiencies identified by examiners.

The data revealed contract-related violations included those involving performance fees, hedge clauses and fee miscalculations. Privacy violations were identified as the eighth most common violation in this year’s examination results, with the majority of violations due to lack of evidence of delivering privacy policies to clients, either initially or on an annual basis.


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