Investment Advisers Compliance

What is an Investment Adviser?

A registered investment adviser (RIA) is an organization or individual hired by clients to provide investment and securities advice. In the United States, RIAs must be registered with the SEC as well as any relevant regulatory agencies in their local states. 

Compliance Requirements for Investment Advisers

The roles and responsibilities of RIAs are laid out in the Investment Advisers Act of 1940. Included in the Act are certain compliance rules that investment advisers must follow in order to ensure that they are operating in the best interest of their clients and are not conducting any illegal market activities.

Some of the key compliance requirements include:

  • Code of Ethics – RIAs must have a written and enforceable code of ethics.
  • Insider Trading Protection – Included in the Code of Ethics should be a clear prohibition against providing investment advice or making trades based on inside information.
  • Policies and Procedures – RIAs need to develop and implement policies and procedures around enforcement of the Investment Advisers Act, including methods for detecting potential violations and correcting them. These policies and procedures should be assessed and reviewed annually. 
  • Accountability – A Chief Compliance Officer must be designated who is responsible for overall oversight of compliance activities. 
  • Recordkeeping – RIAs are bound by strict recordkeeping rules, requiring them to keep accurate and updated records of all business transactions, including communications between employees and clients. 

What is SEC Rule 204-2?

SEC Rule 204-2 is the Books and Records rule that requires investment advisers to keep copies of all business-related communications between employees and clients (among other requirements). Among the categories of records to be kept include:

  • Business and Financial Accounts – including bank statements and any information about financial transactions.
  • Client Communications – including investment advice and transaction instructions. 
  • Licenses and Registrations – this includes authorizations to act on behalf of clients in specific states and jurisdictions.
  • Advertising – RIAs must retain copies of all marketing materials and advertisements they send to at least 10 people.
  • Code of Ethics – including the contents of the code of ethics as well as details of any violations and resulting actions.
  • Policies and Procedures – any changes to compliance policies and procedures must be documented and retained. 

Amendments to the rule allows RIAs to maintain such records electronically, provided that they meet three conditions:

  • The electronic records must be protected from alterations, destruction, or loss.
  • Only authorized personnel can have access to the records.
  • All electronic copies of non-electronic originals have to be complete, true, and legible.

How Can LeapXpert Help Investment Advisers Stay Compliant?

LeapXpert enables RIAs to seamlessly capture and archive client conversations that take place over WhatsApp, iMessage, SMS and more in full compliance with all investment adviser regulations. This fast and flexible SaaS solution is easy to onboard, allowing RIAs to maintain compliance standards while providing a convenient client experience by letting clients communicate using the platform of their choice. 

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