For investment advisers, it could be argued the regulatory compliance policies and procedures manual is the backbone of compliance, explaining, in detail, how the adviser plans to mitigate risk and protect client best interest.
According to the Securities and Exchange Commission, under SEC Rule 206(4)-7, “it is unlawful for an investment adviser registered with the Commission to provide investment advice unless the adviser has adopted and implemented written policies and procedures reasonably designed to prevent violation of the Advisers Act by the adviser or any of its supervised persons. The rule requires advisers to consider their fiduciary and regulatory obligations under the Advisers Act and to formalize policies and procedures to address them.”
However, out-of-the-box, copy-and-pasted policies and procedures are not sufficient to meet this requirement. In fact, the SEC requires firms to customize their policies and procedures in accordance with the firm’s business practices, risks and challenges.
The SEC does offer additional detail, stating an adviser’s policies and procedures should include the following:
- Portfolio management processes, including allocation of investment opportunities among clients and consistency of portfolios with clients’ investment objectives, disclosures by the adviser, and applicable regulatory restrictions.
- Trading practices, including procedures by which the adviser satisfies its best execution obligation, uses client brokerage to obtain research and other services (“soft dollar arrangements”), and allocates aggregated trades among clients.
- Proprietary trading of the adviser and personal trading activities of supervised persons.
- The accuracy of disclosures made to investors, clients, and regulators, including account statements and advertisements.
- Safeguarding of client assets from conversion or inappropriate use by advisory personnel.
- The accurate creation of required records and their maintenance in a manner that secures them from unauthorized alteration or use and protects them from untimely destruction.
- Marketing advisory services, including the use of solicitors.
- Processes to value client holdings and assess fees based on those valuations.
- Safeguards for the privacy protection of client records and information.
- Business continuity plans.
It should be noted, the SEC acknowledges an adviser might not include one of the above mentioned topics within their policies and procedures should it not relate to the specific advisers business practices and firm.
How to customize your compliance policies and procedures to comply with SEC Rule 206(4)-7
With NRS ComplianceGuardian, investment advisory firms can fully customize their policies and procedures manual and easily input any additional updates based on new regulatory activity and requirements.
Step 1: Answer questions developed by NRS compliance experts.
Step 2: Review the final policies and procedures manual tailored to your firm.
Step 3: Receive a customized compliance calendar and compliance task list that aligns with your firm’s policies and procedures.
Step 4: Customize your compliance tasks, assign them to users and have the system send automatic reminder emails.
A thorough policies and procedures manual is the foundation for a comprehensive compliance program, without which firms may struggle to remain compliant and protect client best interest. However, the creation of your manual doesn’t have to be manual. Schedule a demo today to see NRS ComplianceGuardian Policies and Procedures Management in action.