Investment adviser compliance

SEC-registered investment advisers

SEC-registered are subject to various ongoing compliance obligations. In addition to amending Form ADV, adviser must comply with the following requirements:

Annual Surprise Audit by Independent Accountant

When an investment adviser has custody or possession of any funds or securities in which any client has a beneficial interest, it must engage an independent public accountant to verify those funds and securities by annual surprise audit. “Custody” or “possession” includes (in addition to physical custody) access to and the authority to obtain possession of client assets.  There are exemptions from an adviser’s annual surprise audit requirement.  For example, an adviser need not undergo a surprise exam if the investment funds it manages are annually audited by an independent accountant in accordance with GAAP and audited financial statements are distributed to all investors in the funds within a required period of time (and the adviser manages no other assets that would require a surprise exam).

Personal and Proprietary Trade Reporting

An adviser’s “access persons” (generally employees with access to nonpublic information about clients’ purchase or sale of securities) must report personal securities transactions and holdings periodically. Access persons must report their holdings within 10 days after becoming an access person and at least annually thereafter; the information must be current within 45 days. Access persons also must submit quarterly transaction reports within 30 days after the end of the quarter.

Code of Ethics

Rule 204A-1 under the Advisers Act requires investment advisers to adopt codes of ethics covering personal trading and fiduciary duty and requiring advisory firm personnel to comply with the federal securities laws.


Rule 204-2 under the Advisers Act details recordkeeping obligations applicable to SEC-registered investment advisers, including the types of records that must be maintained and the manner, location, and duration of their maintenance.

Duty to Supervise

Section 203(e)(6) of the Advisers Act authorizes the SEC to sanction an investment adviser that fails to supervise any person acting on its behalf who violates the federal securities laws.

Compliance Programs

Rule 206(4)-7 under the Advisers Act requires registered advisers to institute compliance programs containing certain specified formal elements. Specifically, each registered investment adviser must (i) adopt written policies and procedures, (ii) review those policies and procedures on an annual basis, and (iii) appoint a chief compliance officer to administer those policies and procedures.

State-registered investment advisers

State-registered investment advisers are generally subject to ongoing compliance obligations similar to those imposed on SEC-registered investment advisers.