SEC Rule 206 Implements Limitations on Investment Advisors

The SEC Rule 206 became effective February 5, 2004. The SEC is continues to create legislation to protect investors from fraud and deception. Under SEC Rule 206 investment advisors are prohibited from providing investment advice unless they meet certain requirements.

SEC Rule 206 Requirements for Investment Advisors

Investment advisors that are required to register under section 203 must:

• Put procedures and policies into effect that are designed to reasonably prevent any violation of the Advisor’s Act. These procedures and policies must ensure that all advisors comply with the Investment Advisors Act of 1940.

• Annually, or more often if desired, review the policies and procedures and their effectiveness for compliance with SEC Rule 206.

• Choose a chief compliance officer. This must be an individual responsible for administration of the policies and procedures that you established. This must be a person that is under the authority of a supervisor.

Serious Penalties for SEC Rule 206 Violations and Ensuring Compliance

The SEC takes this ruling very seriously. Any investment advisor that is found to be in violation could receive censure, a one year suspension, or revocation of registration. Civil penalties and monetary fines can also apply to any violation of SEC Rule 206.

When it comes to ensuring compliance with the SEC Rule 206 there are several areas of risk management that must be addressed. First of all any possible conflict with SEC legislation, including this rule, should be identified and directly addressed. Specifically, areas that should be focused upon include:

• Portfolio management processes

• Safeguarding assets of clients

• Ethical trading practices

• Marketing services

• Privacy protection for clients

Tools to Ensure Compliance

There are a number of tools that can be used to improve compliance with the SEC Rule 206. The entire process does not have to be as complex as you would imagine. If you employ the services and consultation of a professional company that is well educated in compliance related to rule 206, this chore can be simplified significantly.

Although SEC Rule 206 seems to require a significant effort on the part of investment advisors, it is all just part of daily business for people who perform these services day in and day out. Those that are educated and active in this industry can provide the steps needed to construct and ensure constant compliance with the SEC Rule and all other SEC rulings.

If you want to make sure that you are in complete compliance with this particular and other SEC legislation, do not try to undertake the task alone. This can be a costly mistake. The penalties for noncompliance can be stiff and are not worth the risk. Don’t gamble your company’s ability to comply with the rule and continue to do business uninterrupted.  For more information about compliance with SEC Rule 206 fill in the contact form on this page and a helpful representative will be in contact with you regarding your complimentary consultation.