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Last week, the Minnesota Department of Commerce announced that it was instituting an examination program for investment advisers.  In doing so, Minnesota removes itself from a tiny group of states – the others are New York and Wyoming – that have no investment adviser examinations.

The significance of this is that IAs with between $25 million and $100 million in assets under management, and who are located in states that lacked examination programs, are required to register with the SEC, instead of the state.

The examination process, as announced by the Department, will consist of a review of the following:

  • The adequacy of compliance procedures.
  • The actual adherence to compliance procedures.
  • The accuracy of disclosures to clients.
  • The security of client assets.
  • The financial stability of the adviser.
  • The adviser’s adherence to standards of fiduciary duty.

For now, the Department is only engaged in a pilot program, with five firms to be examined.  Then, in the Fall, the Department will host a conference to discuss process and results.  Firms examined will have to pay a fee, but the amount has not yet been set.

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