To date, we have covered a myriad of topics designed to help you get your firm off the ground, focusing primarily on issues like registration, licensing, advertising, disclosure, and communicating and contracting with clients.  These critical issues have one thing in common – they all involve working with folks outside your firm. Today, we kick off a new chapter of our blog, inviting you to turn your gaze inward and examine the key pieces of your compliance program.

So, let’s start at the very beginning. Advisers Act Rule 206(4)-7 (the “Compliance Rule”) requires that all advisers registered with the SEC:

  • adopt and implement written policies and procedures reasonably designed to prevent the adviser and its personnel from violating the Advisers Act and rules adopted under the act;
  • review, at least annually, the adequacy of those policies and procedures and the effectiveness of their implementation; and
  • designate a chief compliance officer to administer its compliance program.

Interestingly, the Compliance Rule doesn’t indicate what operational issues those policies and procedures should cover.  To find out, we need to look at the Compliance Rule’s adopting release.  In that release, the SEC stated its expectation that an adviser’s policies and procedures, at a minimum, address the following areas to the extent they are relevant to the adviser:

  • Portfolio management processes
  • Trading practices
  • Proprietary trading of the adviser and personal trading activities of supervised persons
  • The accuracy of disclosures made to investors, clients and regulators
  • Safeguarding of client assets from conversion or inappropriate use by advisory personnel
  • Recordkeeping
  • Marketing of advisory services
  • Valuation and fee assessment
  • Privacy and information security
  • Business continuity

Granted, depending on the particularities of an adviser’s business, a firm is likely to need policies and procedures that cover additional compliance areas.  Nevertheless, the list above serves as a good baseline to start from when building or initially assessing your program.  As such, our next series of blog posts will walk you through these key compliance areas so that you can meet your regulatory obligations effectively and efficiently.   We hope you’ll return for our next post, when Josh will discuss critical aspects of your portfolio management processes, including policies and procedures for maintaining the algorithm driving your investment decisions.