As per the SEC Rule 206(4)-7, the registered investment advisors are needed to keep written procedures and policies well designed to prevent and detect violations in the Investment Advertisers Act. Various state security regulators have such requirements for written procedures and policies. However, there are few deficiencies in SEC compliances, which are as follows.


  • Compliance Rule

There are few deficiencies in respect to the compliance rule. There are no well written procedures and policies. Such policies are indeed inadequate. Moreover, the procedures and policies that have been written till now are not corresponding with the actual practices.

These policies claim to have taken the annual reviews or have tested the procedures and policies. However, the authorities are unable to provide the required documents for supporting the claim.

  • Disclosure

There is insufficiency on this aspect as well. There have not been any ADV Part 2A forms provided to the potential clients. Moreover, the answer provided in respect to ADV Part 1A and Part 2A is inconsistent.

There is unavailability of accurate information pertaining to the form. Additionally, there are various inconsistencies between the written P&P and the form. They are not even able to notify the clients about the material changes.

As per Rule 204-3, RIAs have obligation of providing information to prospective and existing clients pertaining to the firm and its operation.

  • Fiduciary Duty

There is bias of one firm or client over the other, particularly when there is any violation in the own procedures and policies. Besides this, there is failure in disclosing the conflict of interest.

However, as per actual rules, there shall not be any bias and all clients should be treated equally. Taking advantage of one client through a conflict of interest which has not been disclosed is an easier way of changing a deficiency into the enforcement case. Therefore, the requirement is here to disclose all of the details.

  • Code of Ethics

There is missing or late filing of needed reports by the Access Persons. Moreover, there is lack of documentation review on part of the CCO. Additionally, access persons with personal trading accounts haven’t being disclosed to firm, and so they are filing fake reports with the firm.

However, as per the rule, in case the firm has implemented written procedures and policies, which are reasonably designed for preventing violations of federal securities laws, and if the CCO diligently keeps on following those procedures and policies, irrespective of whether an access person hides a trading account, and lies while filing the report for firm, the fault will reside with the person breaking the rule, not with the CCO or firm.

  • Advertising Rule

In this aspect, there are misleading and false statements. Moreover, there are inadequate disclosures for preventing statements to be misleading.  Additionally, there are various materials, which contain untrue statements pertaining to the fact.


In respect of any inconsistency, you are advised to visit compliance consultant in order to get the best assistance such that in the end you get the best results without wasting your time and energy.