Annual Compliance Reminders:

The federal securities laws and regulations impose annual compliance and reporting responsibilities on asset managers. This article provides a summary of certain periodic (and annual) compliance requirements applicable to investment advisers, including private equity firms:


Annual Compliance Reviews and Reports

 Federally registered investment advisers are required to review their compliance program annually to determine whether they are adequately and effectively designed to prevent violations of the securities laws. The adequacy and effectiveness of compliance programs are a focus of the Securities and Exchange Commission’s (“SEC”) examination and enforcement programs. Investment advisers and especially their chief compliance officers should ensure that their documented evidence supporting their compliance program’s adequacy and effectiveness elements is sufficient to withstand the SEC’s inquiry and scrutiny. Documentary evidence should include: 

  • Annual certifications from each employee: (1) that each has received, read, and understood the firm’s compliance policies and procedures; (2) that each has received, read, and understood the firm’s code of ethics; (3) that each has disclosed and reported their personal securities transactions; (4) that each has received prior approval and reported all political contributions; (5) and that each has reported all gifts and entertainment received and given to clients of the investment adviser.
  • Delivered updated Form ADV, Parts 2A and 2B.
  • Confirmed client list to ensure state notice filing is accurate. Although firms have to meet certain minimum number of clients in a state before state notice filing is required, we recommend firms notice file once they have retained one client in a state that previously was not notice filed. As example, both Texas and New Hampshire require state notice filing when you retain a client in their respective jurisdiction.
  • Completed and submitted Department of Labor 408(b)(2) ERISA fee compensation disclosures to ERISA plan sponsors.
  • Distributed annual privacy notice.
  • Updated investment adviser representative (IARs) Form U-4. In connection with your annual certifications, require each IAR to certify that each has read and reviewed their Form U-4.
  • Compiled all material and immaterial compliance violations and corresponding resolutions. Discuss how they were remedied and the processes that were implemented to prevent recurrence. This compilation ought to also serve as a part of your firm’s SEC Rule 206(4)-7 Annual Review and Report. Make certain your updated compliance policies and procedures manual reflect the updated implemented procedures.
  • Best Execution (“BE”) review. If your firm omitted quarterly BE reviews, conduct an annual BE review to validate (or not) your execution quality. This is a low hanging fruit.
  • Compliance calendar. Update your 2016 compliance calendar. A review of your compliance policies and procedures manual ought to detail every compliance tasks, among others, that is required to be performed. Make certain to include a new anti-money laundering (“AML”) policy and procedures, as we expect FinCEN to adopt its proposed AML rule which would require investment advisers to establish and adopt an AML program. In connection with this adoption, firms will have to perform periodic AML tests to validate their program.
  • Private Equity (“PE”) Firm Disclosures. PEs should identify and memorialize their inventory of conflicts of interest and disclose such in the Form ADV. A starting place would be the governing documents, including the offering memorandum, subscription agreement, and side letters on which investors made their investment decisions. Particular attention ought to be paid to the allocation of fees and expenses between the contractual parties, fees that may be characterized as hard-to-find advisory fees, and the use of inappropriate marketing and valuation practices.


Regulatory Filings

 Investment advisers have to submit periodic regulatory filings to the SEC. A summary list of the reporting obligations: 

  • Form 13F
  • Form 13D/13G
  • Form 13H: Large Trader Report
  • Form ADV
  • Form PF
  • Form N-MFP


Service Providers

Investment advisers may want to consider requesting cybersecurity preparedness attestation from their primary service providers, including accountants and attorneys. Due diligence visits and reviews and testing of cybersecurity preparedness should also be conducted. It is no secret that the SEC is concerned about investment advisers’ ability to protect the safety and confidentiality of customer information. In September 2015, the SEC announced a settled administrative proceeding against R.T. Jones Capital for its failure to adopt written policies and procedures reasonably designed to protect customer records and information. R.T. Jones had stored sensitive personally identifiable information of clients and other persons on its third party-hosted web server without adopting written policies and procedures regarding the security and confidentiality of that information and the protection of that information from anticipated threats and unauthorized access. The firm’s web server was attacked by an unauthorized, unknown intruder, who gained access rights and copy rights to data on the server. This breach caused the confidential personally identifiable information to become vulnerable to theft. Among other remedial sanctions imposed by the SEC, the firm paid a civil money penalty of $75,000.


Investment advisers cannot afford to become complacent as the SEC remains focused on investment advisers compliance practices, including those long-standing practices which may be exposed to renewed scrutiny. Advisers should be prepared and begin to enhance their compliance program with robust disclosures and in-depth testing and reviews of those long-standing practices.



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