With 2017 rapidly coming to a close, you’re probably thinking about Christmas and your end of year vacation. You also may be putting the last touches on your company’s annual review. The Securities and Exchange Commission (“SEC”) has required advisory firms to conduct annual reviews since the implementation of Rule 206(4)-7 of the Investment Advisers Act of 1940 in December 2003.
There’s several key types of documentation that should be reviewed as a part of your annual review each year. By no means is this list comprehensive, but if you haven’t reviewed the following documents in the last year, you’re past due.
Even if you’re only registered with the states, it’s still a best practice to be conducting an annual review.
1 - Solicitor Agreements and Disclosure Statements:
It’s important to ensure solicitor arrangements are current and meet expectations regarding Rule 206(4)-3 of the Investment Advisers Act of 1940. You’ll also need to verify that solicited clients have received and signed a copy of the solicitor’s disclosure statement and you are maintaining copies as part of your required books and records.
To ensure solicitors are adhering to the representations made in the solicitation agreement and are only providing the services outlined, it is helpful to have each of them provide written annual certifications confirming compliance.
2 - Code of Ethics Reports:
Your Code of Ethics (“Code”) requires, among other things, that all Access Persons submit certain reporting pertaining to personal trading, outside business activities, gifts and entertainment, and other conflict areas. The reports submitted should be reviewed by compliance to not only confirm they have been completed and within stated time periods, but also to ensure there has not been any violations of the Code requirements.
3 - Marketing and Advertising Collateral:
Review and confirm that business presentations, commentaries, newsletters, websites, blogs, video, social media sites, and all other current marketing collateral is up-to-date and contain required and applicable disclosures.
Additionally, all marketing materials and supporting documents must be retained as part of the firm’s required books and records, so it’s important to perform a sampling review to confirm retention.
Also, to be certain employees are only using approved marketing materials, you can perform random email reviews. You also can utilize the services of a compliance consulting firm to perform such reviews.
4 - Registration and Regulatory Filings:
Naturally, the documents you should be reviewing annually include all regulatory filings. Make sure to review your current Form ADV to verify the information contained in the registration documents are accurate.
If the SEC conducts an exam, you want to be confident you are including all required information in your registration documents.
5 - Business Continuity Plan:
Review your Disaster Recovery/Business Continuity plan to make sure it includes both localized business disruptions and wide spread disasters. Firms need to fully test their plans at least annually, as well as perform due diligence on whether their service providers have tested their own plans.
After your own tests as well as your service providers' are performed, review a summary of results, including any enhancements recommended/made because of the tests.
Annual reviews serve many purposes, and should be embraced by your organization.
Consider annual reviews an important component to ensuring your firm is operating within all required compliance parameters. Annual reviews give you the opportunity to find gaps in your policies and procedures, so the gaps can be corrected in a timely manner.
If you’re not sure where to begin, or if you’re concerned that you may be missing a problem area in your Annual Review process, feel free to give us a call. The experienced team at Core Compliance℠ has decades of experience with helping firms like yours continually improve their compliance program and are well versed in the annual review process.
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