NASAA Annual Report on State Registered Advisers

In April, the North American Securities Administrators Association (NASAA) published its Investment Adviser Section Annual Report, highlighting its 2020 activities concerning state-registered advisers. In sum, the report paints a statistical picture of the average state-registered adviser in 2020, reports on a sampling of state approaches to managing through the COVID-19 pandemic, and addresses two major NASAA initiatives – the Investment Adviser Policies and Procedures Model Rule and the Investment Adviser Representative Continuing Education Model Rule.

Unsurprisingly the “average state-registered IA” continues to be a one- to two-person shop serving retail investors (81%), with advisers that are predominantly registered as investment adviser representatives (95%). Almost half are also insurance agents (48%), and more than one-third are also broker-dealer registered representatives (36%).

NASAA released two model rules in November of 2020, which are available for consideration and optional adoption by all NASAA jurisdictions. The IAR Continuing Education Model Rule would require IARs to complete 12 hours of continuing education per year, including satisfying products, practices, and ethics components. NASAA offers a FAQ for affected firms and their IARs. The IA Written Policies and Procedures Model Rule reads similarly to the SEC’s Advisers Act 204(6)-7 (the “Compliance Program Rule”), applicable to SEC-registered advisers. An accompanying Compliance Grid lists what NASAA feels are many of the most common compliance and supervision issues IAs should consider in their policies and procedures.

Other areas highlighted in the annual report include:

  • Cybersecurity – NASAA’s Cybersecurity Checklist and Guidance for Investment Advisers addresses 89 assessment areas to help state-registered advisers manage their cybersecurity efforts and is a helpful reference for any small firm.

  • Pandemic Response

    • NASAA reported on its efforts to maintain open communication with state-registered advisers, primarily through alerts and advisories on critical updates, trends, and topics.

    • Ohio, Arizona, Utah reported “wins” by taking their annual outreach conferences virtual in 2020. Ohio, in particular, reported that it was so successful it plans to retain a virtual component in the future.

    • NASAA encourages state-registered IAs to continue to consider the fallout from the pandemic with specific emphasis on their business continuity and succession planning, cybersecurity and the protection of client information, and supervision efforts. SOURCE

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