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