Conducting The Annual Review for Advisers

How to Prevent Violation of The Federal Securities Law, Rule 206(4)-7

THE RULE: -

The Investment Advisers Act of 1940 compels an investment advisor registered with the SEC to form and carry out written compliance policies and procedures, appoint a CCO to oversee them, and annually review the sufficiency and effectiveness of their implementation. The annual review includes testing to ensure that the internal controls of the organization prevent violations and circumvention of federal securities laws.

THE IMPORTANCE OF COMPLIANCE AND ADEQUATE OVERSIGHT: -

The Annual Review is subject to review by the SEC during an examination. In the matter of Dupree Financial Group, the SEC imposed a fine of $25,000 for the firm's failure to satisfy the SEC's requirement. Here, Dupree had engaged two "compliance-in-a-box type firms" to help establish internal policies and make certain that the SEC's regulatory requirements were satisfied. However, in the end, a generic Compliance Manual was delivered to Dupree with no plan in place for the review and testing. This case underscores the importance of a full compliance program and onsite guidance as opposed to a grab and go plan that can expose a firm to penalties.

WHAT THE ANNUAL REVIEW SHOULD ENCOMPASS: -

• Portfolio Management Processes
• Trading Practices
• Proprietary Trading
• Accuracy of Disclosures
• Safeguarding of Assets
• Creation and Secure Maintenance of Required Records
• Marketing of Advisory Services
• Valuing Client Holdings
• Privacy Protections of Client Records and Information
• Business Continuity Plan

KEY BENEFITS TO WORKING WITH COMPLIANCE WORKS : -

Compliance Works ( "CWI" ) is a leading Outsourced Compliance Firm providing comprehensive solutions to help investment firms meet regulatory requirements. As an increasingly complex regulatory environment unfolds, compliance programs are shifting in complexity as well. This shift is making it critical for investment firms to work with compliance professionals that have the ability to exercise comprehensive oversight through calendarized tasks and routine contact. Compliance Works helps firms maintain sound and effective compliance programs and perform testing, as well as updates that may be required as its business grows and changes.