As the wealth management industry faces a plethora of terms and conditions on managing a practice, it can be difficult to keep up with compliance – especially if you’re a newly independent advisor.
Last week, we covered the compliance requirements to consider before going RIA. Consider this "Part 2" because there’s still a lot to delve into. For one, once advisors have submitted all the proper documentation to their respective regulator, it’s important to understand what's allowed and what would violate compliance rules during the waiting period.
Alisha Dowell, founder and CEO of Knight's Shield Compliance Consulting, says one such thing for new RIAs to take note of is they can’t operate as an investment advisory firm until they’re registered. As such, advisors aren't allowed to provide investment advice because they’re not yet considered an investment advisor.
“But there are a lot of things you can do behind the scenes to get yourself set up [in the meantime],” she says. “You can start talking to custodial firms, figuring out where you want to house the funds and where you want to hold your clients’ money. You can set up your business infrastructure and your office space. Get your website created but not launched yet.”
This stage is also when advisors can begin forming relationships with potential clients, compliance consultants, custodians and technology providers. If one chooses to work with an outsource compliance consultant, they can also have them create and review marketing materials and develop the proper compliance policies and procedures.
Dowell notes that once all required documents have been submitted, it usually takes 30 to 45 days to be approved by the regulator. For some states, however, this timeline may take even longer. Dowell reiterates it's important to understand what regulator they’re required to register with, highlighting generally, the line is $100 million dollars. If advisors are under that, they'll be registering with individual states. Over that line, it will be with the SEC. Dowell asserts that choosing a regulator should be a key priority new RIAs have to make, because of how it "impacts timing."
“In Florida, Texas and Washington, it can take up to six months, because they want meetings with the staff. They want to review your investment advisor agreements. They want to review a lot of extra things at the state level if you're going to be registered under that $100 million,” says Dowell. “But once you get approval, you can press go and just get to engaging with the business."
She also cautions new RIAs to not solicit clients, prospective or otherwise, but it is okay to meet with them and get to know them. Additionally, she warns against signing client agreements, charging fees, trading on behalf clients or public marketing and marketing with the use of a title.
“This is also where that timing comes into play. If you’re leaving a large firm and going out on your own, [ask yourself], ‘How do I want to do this? How can I transition this?’ There are a lot of compliance consulting firms that can help with that transition. It's really utilizing that month and a half, potentially two months, to get yourself set up correctly,” she added.
Ultimately, Dowell goes by her own rules of conduct: if it’s not documented, it didn’t happen. Accordingly, if it’s documented, it happened. She affirms advisors need to be aware of retained channels.
“Don't use WhatsApp and don't use LinkedIn unless you have an active social media archiving process. Don't text message unless you've got that retained. It is super important when you're dealing with client communications that they all be retained. That's a really big point the SEC is hitting hard right now.”
Ian Meiskins, president and co-founder of Key Bridge Compliance believes best practices for keeping compliant is at the core of the business.
“Have policies and procedures that are tailored to your firm, that’s where it starts. Diving into the specifics of your business and adapting and focusing on the process is really key to doing well.”
He points to a heavy marketing firm as an example. Assigning someone [or multiple people] responsibility of doing the marketing, who will take care of both the back and front-end, is "half the battle with the SEC."
“If you say you're going to do something, you absolutely have to do it. If you focus on that process and it's very detailed, it's very organized, and it's very tailored, you're halfway there," says Meiskins.
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