A recent report from the North American Securities Administrators Association (NASAA) highlights a substantial decrease in violations during coordinated state investment adviser examinations in 2023 compared to mid-2021. Violations across various categories, including registration, books and records, supervision, and compliance, have fallen by half or more.
Reasons for Decline Unclear
While the report doesn’t provide a definitive explanation for the sharp decline in investment adviser violations, it is suggested that some improvement may be attributed to advisers addressing issues identified in prior routine exams. NASAA and state regulators have been working diligently with state-registered investment advisers to ensure compliance.
Increased First-Time Exams
The 2023 report reveals that 34% of investment advisers underwent their first-ever state examinations, compared to 24% in 2021. This may have contributed to greater compliance as advisers faced scrutiny for the first time.
Specific Category Improvements
Several violation categories experienced significant reductions. Notable declines include:
- Violations related to registration dropped from 44% in 2021 to a 23% rate in 2023.
- Books and records violations decreased from 42% to 17%.
- Supervision and compliance violations fell from 29.5% to over 16%.
- Contract violations plummeted from 30.5% to over 12%.
- Fee-related violations decreased from 19% to 6.4%.
Ongoing Concerns
Despite these improved results, NASAA Chair Alisa Goldberg emphasized the importance of investment advisers staying vigilant in areas such as Form ADV filings and ensuring customer contracts have accurate information. Additionally, states have identified issues related to client suitability and protections for vulnerable investors, highlighting the need for policies and procedures to address financial abuse.
To read the full report, click here.
