Routine Field Examinations of Investment Advisers

Selection of an investment advisory firm for examination is random.  However, we try to visit newly registered investment advisers within the first year or two of business to ensure that new investment advisers are operating in compliance with state and other applicable securities laws.

What Should I Expect?
The examination consists of a questionnaire, an interview, and conversations between the examiner and the investment advisor that will enable the examiner to obtain a clear picture of the investment adviser’s operations.  A review of the investment adviser’s books and records will also be conducted to ensure compliance with securities laws.

To begin this process, the investment adviser will be sent a questionnaire that asks basic information about the firm and the scope of the services available to their clients.  The questionnaire includes requests for documentation to be sent back for review.  After reviewing the documentation, the examiner will request additional information, including a sampling of client account information.  The adviser will likely be asked additional follow-up questions for clarity and there may be additional discussions about potential problems found during the books and records review.

An on-site visit will also be scheduled so the examiners can see where the investment adviser’s business is being conducted and the adviser and examiner can further discuss the adviser’s business operations.

What Records are Reviewed?
The department may review all records pertaining to an investment adviser’s business operations, including the following items:

  1. Form ADV;
  2. The Firm’s Brochure, Form ADV part II;
  3. List of names and positions for all employees, and their business cards;
  4. Client Contracts and new account forms;
  5. Client account information & brokerage Statements;
  6. Privacy Policy;
  7. Cash and Check receipts and disbursement records;
  8. Advertisements including web sites, pamphlets, and brochures

Additional items may be requested.  Please refer to the Investment Advisers Act, 17 CFR §275.204-2 for bookkeeping requirements.

Common Deficiencies:
Annual Financial Statements (HAR §16-39-437)
Investment advisers must file an annual financial report within 90 calendar days following the end of the investment adviser’s fiscal year.  Please see Investment Advisor Annual Requirements.

Out of date information on form ADV on IARD (HAR §16-39-440)
If there is a material change to the information submitted, form ADV must be updated accordingly.  Information such as number of clients and assets under management should be updated at least once a year.