Registered Investment Advisor Audit Requirements


How Wipfli Can Help

Starting out as a Registered Investment Advisor: A Primer on RIAs Compliance Obligations

At Wipfli, we are committed to helping wealth management and asset management firms succeed and grow with compelling and powerful insights, resources and solutions. Our team provides practical solutions that support and monitor regulatory compliance issues and helps develop policies and train employees. Visit our web page to learn more about our services.

All About The Compliance Audit For Investment Advisers

Audit season starts as soon as a financial year gets over. And is it no different for SEBI registered Investment Advisers .

As per SEBI Regulations, 2013, all investment advisers have to get a yearly audit done in respect of compliance with the regulations from a Chartered Accountant or a Company Secretary in practice.

As a Company Secretary in practice, I am eligible to conduct the compliance audit for you and give you an audit report which you can share with SEBI / BASL.

Here are a few common questions asked by RIAs:

Investment Advisers Must Provide Clients And Prospective Clients With A Written Disclosure Statement

Registered investment advisers are required to provide their advisory clients and prospective clients with a written disclosure document . As a registered adviser, you comply with this requirement by providing advisory clients and prospective clients with Part 2 of your Form ADV. This written disclosure document should be delivered to your prospective clients before or at the time of entering into an advisory contract .

Each year, you also need to deliver Part 2 or summary of material changes to each client, without charge. You are required to maintain a copy of each disclosure document and each amendment or revision to it that was given or sent to clients or prospective clients, along with a record reflecting the dates on which such disclosure was given or offered to be given to any client or prospective client who subsequently became a client ).

You May Like: Can I Invest Under 18

Registered Investment Advisor : Responsibilities And Requirements

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Marcus Reeves is a writer, publisher, and journalist whose business and pop culture writings have appeared in several prominent publications, including The New York Times, The Washington Post, Rolling Stone, and the San Francisco Chronicle. He is an adjunct instructor of writing at New York University.

Principal Place Of Business Not In California

SEBI registered Investment Advisor in Kolkata

You should maintain minimum capital as required by the state in which you maintain your principal place of business, provided you are Licensed or registered in such state and are in compliance with such states minimum capital requirements. If you are not Licensed or registered in the state where you maintain your principal place of business, you are subject to Californias minimum financial requirements.

Also Check: How Do I Start Investing In Etfs

Iv Information Protection And Processes

Ogadai Khan, Second Khan of the Mongol Empire, conqueror of the Jin Dynasty, and Cybersecurity Overlord of All that is Living, pictured here during an annual cybersecurity training module given to Mongolian forces .

Sounds complex, but this concept is pretty simple. The main goal here is to ensure systems are set up to protect your data. A lot of overlap with other sections, so I will push through these pretty quickly.

  • Baseline configuration of systems. Simply put, dont just buy a new computer and throw it on your network. Have a new equipment checklist that ensures your computers arent activated until they are cybersecurity approved with encryption, passwords, etc. Same goes for mobile.
  • System life-cycle in place. For advisors, another simple task: make sure your systems are updated as they age. A great example is discontinuing Windows versions that are no longer supported with patches and updates. If you are using a platform that is no longer getting patched as vulnerabilities present themselves, it’s probably not a good idea.
  • Configuration change processes in place. Another no-brainer. Set up an admin password for your computers and ensure only the admin can make changes to your machines . Fairly common sense, low-tech here.
  • Ongoing improvements for data protection. More low hanging fruit. Make this a standard bullet in your annual cybersecurity review meeting. Identify room for improvement that is specific to your firm and implement it. Easy day.
  • Our Surprise Custody Exam Services

    Certain investment advisers registered with the SEC and deemed to have custody of client assets are required to engage a CPA firm, registered with and subject to regular inspection by the PCAOB, for the purpose of conducting an annual surprise custody exam. But the advisory process begins with determining who falls under the scope of the custody rules. Part of our work with RIAs has been to assist them in determining if an exam is even necessary. Surprisingly, many RIAs that believe they are subject to the rules, in fact, are not.

    For those that do require an exam, our firm can perform the audit efficiently, cost-effectively and with minimal disruption to your operations. As a PCAOB-registered firm subject to regular inspection, we have performed a significant number of custody exams or custody-related internal control reports as a result of the custody rule amendments. We also stay current on continuing developments with the SEC rules and have consulted with the SEC on a number of occasions for interpretations and adviser-specific issues.

    > > For questions regarding Surprise Custody Exams, contact Mike Meckstroth, CPA, CGMA, at .

    Recommended Reading: Ishares Broad Usd Investment Grade Corporate Bond Etf

    Comprehensive Solutions & Services For Rias

    We intimately understand a Registered Investment Advisers business, and not just from a financial reporting perspective. We understand an RIAs business as a whole, its clients, revenue cycles, product lines, compliance challenges and related entities whether that includes an affiliate broker/dealer, trust company or fund .

    While attest services such as audits, surprise custody exams and Global Investment Performance Standards engagements are paramount to RIAs, so are tax-saving and business planning ideas. Our firms sizable Tax Department specializes in international tax services, state and local credits and incentives, estate and gift planning, and a variety of other areas impactful to RIAs.

    Ria Licensing And Qualifications

    How do I logistically setup a Registered Investment Advisor (RIA)?

    The first step to becoming a Registered Investment Advisor is to pass the Series 65 exam. This test is administered by the Financial Industry Regulatory Authority , a self-regulating, private organization that writes and enforces the rules governing registered brokers and broker-dealer firms in the United States.

    However, test-takers are not required to be sponsored by a broker-dealer, as they are for most other securities-related exams administered by FINRA.

    The test itself covers federal securities laws and other topics related to investment advice. It has 140 multiple choice questions, of which 10 are pretest questions that will not count towards the final grade. Of the 130 scored questions, a candidate must correctly answer 94 to pass the three-hour exam.

    It is important to note that while no other licensure or designations are required in order to become an RIA, most advisors will find it rather difficult to bring in business without additional qualifications, such as the CFP® or CFA designation. In fact, many states will actually allow advisors who carry the following designations in good standing to waive the Series 65. These designations include:

    Don’t Miss: Investment Property Refinance Rates 15 Year

    Our Tax Services For Individuals

    RIAs deal with complicated tax matters in the course of business, which ultimately affect their owners personal tax situation as well. We work with RIAs on their business tax issues and then leverage that knowledge to provide insightful ideas for owners personal tax matters. We assist with:

    • Individual federal and state income tax compliance

    • Family Limited Partnership, trust, and gift and estate tax planning and compliance

    • Industry-specialized income tax preparation related to active traders and owners of investment advisers or broker/dealers

    > > For questions regarding individual taxation, contact Sue McGovern, CPA, at .

    Understanding Registered Investment Advisors

    The rules on investment advisors were formulated by the Investment Advisers Act 1940 This law requires individuals or businesses that dispense professional investment advice to register with the Securities and Exchange Commission, although there are exemptions for smaller firms.

    Investment advisors are permitted, although not required, to register with the SEC if they manage a minimum of $25 million in assets. But it becomes mandatory for those firms that manage $100 million or more, as RIAs managing at least that amount are required quarterly to disclose their holdings to the SEC. Investment advisors who manage smaller sums of investment money typically are required to register with state securities authorities.

    Registering as an RIA does not imply any recommendation or endorsement by the SEC or any other regulator. It means only that the investment adviser has fulfilled all of that agencys requirements for registration. Registering with the SEC requires disclosing information that includes:

    You May Like: Invest In Prosper Or Lending Club

    Your Accounting Firm Must Be Registered With The Pcaob

    Not all accounting firms are qualified to provide an RIA surprise audit. A surprise audit must be performed by an independent public accountant who is registered with the PCAOB and subject to regular PCAOB inspection. To comply with this requirement, an independent public accountant must have provided audit services for at least one public issuer during any of the last three prior calendar years.

    Investment Adviser Registration Depository

    Registered Investment Advisers vs. Broker

    The IARD is a joint effort by the U.S. Securities and Exchange Commission and the North American Securities Administrators Association . The Financial Industry Regulatory Authority , acting as a vender only, operates the IARD.

    The first step in applying for investment adviser registration is to apply for access to the IARD system by completing forms in the State Registration IARD Entitlement Packet. This information is available at The IARD Entitlement Group will send you a Confirmation Packet containing a log-on name and initial password which you will use to sign onto the IARD.

    Prior to signing on, you should access the IARD Users Manual on the IARD website. It provides detailed instructions on how to submit your electronic filings. The IARD Users Manual helps guide you through IARD filings. You might find it beneficial to print this manual for future reference. After you receive a log-on name and initial password, you can set up your on-line IARD account by following the steps in Chapter 2 of the IARD Users Manual.

    The FINRA Investment Adviser Support line is available at 386-4848 to assist you with questions regarding IARD system navigation and use. FINRA does not have regulatory authority over investment advisers therefore, questions related to investment advisory policy, interpretation, or regulatory requirements should be directed to the State Securities Board at 305-8300.

    You May Like: Why Invest In Alternative Investments

    Rias And The Form Adv

    The next step in the registration process is to create an account with the Investment Adviser Registration Depository , which is managed by FINRA on behalf of the SEC and states.

    Once the account is open, FINRA will supply the advisor or firm with a CRD number and account ID information. Then the RIA can file Form ADV and the U4 forms with either the SEC or states.

    The Form ADV is the official application document used by the government to apply to become an RIA. It has multiple sections that all must be completed, although only the first section is electronically submitted to the SEC or state government for approval. Part II of the form serves as a disclosure document that is distributed to all clients. It must clearly list all services that are provided to clients, as well as a breakdown of compensation and fees, possible conflicts of interest, the firm’s code of ethics, the advisor’s financial condition, educational background and credentials, and any affiliated parties.

    This form must also be uploaded electronically into the IARD and given to all new and prospective clients. Preparing and submitting these forms typically takes most firms a few weeks, and then the SEC must respond to the application within 45 days.

    Most states require RIAs to have a net worth of at least $35,000 if they have actual custody of client funds and $10,000 if they do not RIAs who fail to meet this requirement must post a surety bond.

    In Addition The Following Items Must Be Filed Directly With The Securities Commissioner At:

    State Securities BoardP.O. Box 13167Austin, Texas 78711-3167

  • A copy of the firm’s articles of incorporation or other documents which indicate the form of organization, certified by the jurisdiction or by an officer or partner of the applicant
  • A copy of the firm’s By Laws or Operating Agreement
  • An audited or certified balance sheet prepared in accordance with generally accepted accounting practices reflecting the financial condition of the investment adviser not more than 90 days prior to the date of such filing along with Form 133.18 completed by the applicant’s principal financial officer. Access the Form 133.18 Certification of Balance Sheet by Principal Financial Officer Form.
  • A copy of the investment adviser’s standard advisory contract in compliance with Texas Rule 116.12 and
  • A fee schedule.
  • Don’t Miss: Private Equity Investments For Small Investors

    What Are The Explicit Sec Cybersecurity Requirements

    In 2016, the SEC revealed a serious, highly embarrassing security breach of their main investor database, the EDGAR system. Hackers were able to steal thousands of corporate releases and insider documents before their release to the public. The end results were over $100M in illicit trading profits and other gains at the expense of everyday investors. Despite being warned by the Government Accountability Office forcoughEIGHT YEARS about the potential security issues, the SEC did not make the required changes, and the rest, as they say, is history.

    Why am I telling you this?

    The SEC, like most of us, is struggling to fully wrap their hands around cybersecurity. Imagine a police officer, on horseback, being asked to pursue criminals in cars, while simultaneously writing regulations to pursue future cars. This is the challenge the SEC faces.

    Juan Ponce de Leon, circa 1510, searching for the fountain of youth and a comprehensive guidebook from the SEC on cybersecurity.

    This challenge is why you will not find and probably never will find explicit cybersecurity requirements from the SEC. Cybersecurity is changing too quickly, the government is scrambling to catch up, and posting hard rules and requirements like traditional securities rules could open up a slew of lawsuits. So, searching for explicit SEC cybersecurity requirements is akin to searching for the fountain of youth .

  • Read sample exam checklist from 2014 from SEC . If you only have time for one, read this one.
  • What You Should Know About The Data Files

    Whats a Registered Investment Advisor?

    The Investment Adviser Information Reports are made available as zip files that contain a spreadsheet file when unzipped. These files contain information about investment advisers who are registered with the SEC or who are filing reports as Exempt Reporting Advisers with the SEC. The majority of the data fields included in this report are from Form ADV and the reports column headings refer to specific questions within Form ADV refers to Form ADV, Item 5B). Please refer to the Form ADV for a full description of the data fields included in this report the form ADV may be found at . The sections of Form ADV included in this report are:

    Item 1 Identifying InformationItem 3 Form of OrganizationItem 4 SuccessionsItem 5 Information About Your Advisory BusinessItem 6 Other Business ActivitiesItem 7 Financial Industry AffiliationsItem 8 Participation or Interest in Client TransactionsItem 9 CustodyItem 10 Control PersonsItem 11 Disclosure Information

    Please note that Exempt Reporting Advisers only file Items 1, 2, 3, 6, 7, 10, and 11 on Form ADV.

    Also Check: How To Invest 1 Dollar

    Tips And Tools For Surviving The Regulatory Examination Process Of Your Investment Advisor

    According to the U.S. Securities and Exchange Commissions examination staff, federally registered investment advisors may be subject to an SEC examination or inspection for three main reasons: routine examination or inspection, because of an investor complaint, and a sweep, or industry-wide, examination focusing on a particular area of investment advisor compliance or risk area.

    An on-site visit from the SEC can be a stressful time for your managing principal, chief compliance officer, the registered investment advisor firm itself and the firms staff. The ability to effectively plan and prepare for an SEC inspection can reduce this potentially stressful situation and enable your registered investment advisor firm to have more confidence leading into a SEC examination. On-site investment advisor examinations by the SEC are conducted on both an announced or unannounced basis. Prior to an announced examination, the SEC will deliver to the registered investment advisor a pre-audit packet containing information on the SECs authority to conduct the examination under the Investment Advisers Act of 1940 and information or documents SEC examiners will review as part of the inspection.

    The following is a list of tips and tools prepared to help you as Chief Compliance Officer survive an SEC examination or inspection of your registered investment advisor firm.

  • Act Honestly. Cooperate with SEC examiners and be honest.
  • Sec Proposes New Rule On Investment Advisors Disclosures And Compliance

    By Cliff Thau, Bryan Hogg, and David Hoffman

    The Securities and Exchange Commissions escalating focus on investment advisor compliance is continuing into 2022. In 2021, the SEC brought 159 enforcement actions against investment advisors or investment companies accounting for 23% of all enforcement actions the SEC brought in 2021.1 In conjunction with this attention to investment advisors and investment companies, the SEC has proposed a rule that places additional requirements and constraints on investment advisors and companies. Such affected entities and persons should study the Proposed Rule to ensure that they understand and are able to meet its requirements should the Proposed Rule go into effect.

    In a November 2021 speech at the Institutional Limited Partners Association Summit, SEC Chair, Gary Gensler, outlined areas of particular concern to the SEC with respect to investment advisors.2 Gensler discussed:

    And now the SEC has proposed a new rule to tackle many of the areas addressed in Genslers speech.

    The new rule, which the SEC proposed under the Investment Advisors Act on February 9, 2022, would impose significant new requirements and limitations on private fund advisors.8 Some of the key provisions include:

  • Books and Records Rule the SEC will require advisors to retain records regarding all of the above requirements, and to document the annual review of the adequacy of their compliance procedures in writing.
  • 3 Id.

    Read Also: How To Invest In Doordash


    More like this

    Morgan Stanley Investment Banking Division

    Investment Banking...

    How To Become An Sec Registered Investment Advisor

    Competitors In...

    Best Real Estate Investing Advice

    There Is...

    Series 65 Registered Investment Advisor

    Who Needs...