November 7, 2012

Who's Who in the Eyes of RIA Regulators

Years ago, as a partner in a small advisory firm I was asked to review and update our compliance program. This firm was a bit more complex than most, in that we had a pretty expansive set of outside shareholders, contractors and advisory board members in place. When I got to the topic of reviewing "roles" of each of these individuals I got a bit stumped. Who exactly were our "access persons"? Supervised persons?

Fortunately in most wealth management business models, determining "who's who" in your advisory firm is fairly simple ..assuming you understand the SEC's definitions of each role.


Here is an overview of each defined role that advisors must identify and monitor.

Chief Compliance Officer (CCO)
This is an individual that is responsible for administering and enforcing your firm’s compliance program. The CCO may delegate responsibilities to appropriate designees as long as he/she remains primarily responsible for compliance oversight and administration.

The CCO must be empowered with full authority to develop and enforce your firm’s compliance policies and procedures.The CCO and designees must be competent and knowledgeable regarding the Investment Advisers Act of 1940 as well as an securities laws that apply to your investment process.

Key Takeaways: Be able to demonstrate that your CCO is knowledgeable of securities regulations and has sufficient authority to enforce and affect change.

Investment Adviser Representative (IAR)
Any person that (for compensation) makes any recommendations or delivers advice to clients; manages client portfolios; determines which recommendation or advice regarding securities should be given; solicits, offers, or negotiates for the sale of or sells investment advisory services, or supervises people that perform any of these activities.

Key Takeaways: Essentially anyone that provides (or sells) advice for your firm will be considered an IAR. With the exception of administrative duties (like answering the phone, taking messages, or setting up meetings) everyone that has client contact should be an appropriately-licensed IAR of your firm. This includes solicitors.

Supervised Person
A supervised person is any partner, officer, director (or other person occupying similar status or performing similar functions), or employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser.  This definition essentially defines those individuals that are considered to be under the supervision and control of your firm.

Key Takeaways: Essentially includes your entire team including external solicitors. Your Written Supervisory Procedures apply to all Supervised Persons.

Access Person
Access Persons are anyone that has access to nonpublic information regarding client transactions or who is involved in making securities recommendations to your clients or has access to recommendations that are non public.

Key Takeaways: Non-public information includes client information, trading activity, and model portfolios. Access persons are subject to your firm's Code of Ethics and Personal Trading Policies.


CCOs should maintain an up-to-date list of people that fall under each of these categories. By doing so, they will be in a solid position to ensure (and document) that policies are applied to appropriate people that fall under their firm's compliance program.

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