State Registered Investment Advisor Examination Deficiency Letter Response

The situation

Sarah, 46, is the sole owner and principal of Clearview Investment Advisors LLC, a state-registered RIA in Texas with $42M in AUM and 31 clients (retirees and pre-retirees in the Dallas-Fort Worth area). Sarah has been registered with the Texas State Securities Board (TSSB) since 2018.

In April 2026, a TSSB investment adviser examiner conducted an on-site examination of Clearview. In June 2026, Sarah received a 12-page Deficiency Letter listing 7 findings: (1) Form ADV Part 2A Item 14 (conflicts of interest), disclosure did not include referral relationship with estate planning attorney; (2) Compliance Program, no written supervisory procedures for email communication review; (3) Marketing Rule violation, website testimonial page lacked required compensation disclosure for referred clients; (4) Fee disclosure inconsistency, ADV Part 2A states fees are billed quarterly in advance; Sarah actually bills monthly; (5) Missing required annual compliance review documentation (no written record of annual compliance review for 2024); (6) Client agreement template, advisory agreement did not include 48-hour notice of material changes; (7) Missing investment policy statements for 6 client accounts.

The deficiency letter demands a written response within 30 days.

(a) Most of these findings are documentation fixes, not regulatory failures. Finding (4) (billing frequency mismatch) is a $0 fix, update the ADV Part 2A to say "monthly" and file an amendment. Finding (5) (no annual compliance review documentation) is cured by conducting and documenting the 2025 annual review this month and committing to documenting future reviews. Finding (7) (missing IPS) is cured by creating the 6 IPS documents and committing to a process for all future clients.

(b) Finding (3) (Marketing Rule, testimonial page) is a genuine rule change. The SEC Marketing Rule effective November 2022 requires testimonials and endorsements to include: (a) whether the person giving the testimonial is a current client; (b) whether compensation was paid; (c) a brief statement that the testimonial may not be representative of all clients' experience. Sarah's website was compliant under the old Advertising Rule, it became non-compliant when the Marketing Rule took effect in 2022. The fix: add the required disclosures to the testimonial page, commit to a timeline.

(c) Finding (1) (referral conflict) is disputable. Sarah did not receive monetary compensation from the estate planning attorney, she refers clients to him as a professional courtesy, and he occasionally refers to her. If there is no compensation arrangement (just mutual referrals with no formal agreement), the "referral relationship" may not require ADV disclosure under Item 14. Sarah should dispute this finding with supporting documentation (no compensation agreement, no written referral arrangement).

(d) The Texas State Securities Board examiner cannot advise Sarah on how to respond to these findings. The compliance consultant she uses ($3,200/year for compliance management) told her this response would cost an additional $4,500 as a separate engagement.

Second portrait: Michael, 52, is the CCO and sole owner of Northwest Capital Management, a state-registered RIA in Oregon ($28M AUM, 19 clients). His 2025 Oregon Department of Consumer and Business Services examination produced a deficiency letter with 4 findings centered on: (a) compliance program, no formal written Code of Ethics; (b) ADV Part 2A Item 8 (investment strategies), description was too vague and didn't describe the specific equity screening methodology used; (c) record-keeping, emails with clients not retained in accessible format; (d) custody, Michael's spouse has a power of attorney over client assets, creating a technical custody issue Michael didn't know triggered special custody rules. Michael has 30 days to respond. He doesn't know that (d) requires either adding a qualified custodian independent audit OR filing a notice with Oregon DCBS.

Who receives this

Solo and small-firm state-registered RIAs (under $100M AUM) who receive investment adviser examination deficiency letters from state securities regulators. Primary states: California (DFPI), Texas (TSSB), Ohio, Florida, and other states with active RIA examination programs. Typical firm: 1-3 advisors, owner-CCO, $15M-$90M AUM, 15-50 clients, minimal dedicated compliance staff.

Why the agency will not advise you

State securities examiners cannot advise RIAs on how to respond to their own deficiency findings. RIA compliance consultants (RIA Compliance Consultants, RIAinaBox, Compliance Alliance) provide compliance program management but do not specialize in post-examination response. State RIA attorneys charge $3,000-$10,000 per examination response. The marketing rule change (November 2022) created a new deficiency category that is hitting state RIA examinations 2023-2026, generating demand for targeted guidance on what the rule requires and how to come into compliance after a finding.

Key facts, with sources

• State securities regulators conduct investment adviser examinations under authority granted by state securities acts (often modeled on NASAA's Uniform Securities Act). The frequency of state IA examinations varies: many states conduct initial examinations within 12 months of registration, then periodic exams every 3-7 years. The 2024 NASAA Investment Adviser Section coordinated exam priorities included: Form ADV Part 2A Brochure completeness and accuracy (required disclosures: fees, conflicts of interest, disciplinary history, investment strategies); compliance program adequacy (SEC Rule 206(4)-7 analogue under state law, written compliance procedures reasonably designed to prevent violations); Marketing Rule compliance (post-November 2022 SEC Marketing Rule compliance is being adopted into state examinations); custody compliance (whether RIA or its affiliated firm holds client assets and proper custody notification). Connecticut's Investment Adviser Examination Program is one example: deficiency letters require a written response stating how deficiencies will be corrected, with the adviser usually given a two-week period to respond. Most state examination programs follow this model. Source: Investment Adviser Examination Program in Connecticut — CT Department of Banking · State Investment Adviser Registration Information — NASAA · Investment Advisor Regulation: SEC and State Rules for RIAs — InnReg
• The state-registered RIA market consists of approximately 12,000-17,000 investment adviser firms registered with state securities regulators (SEC-registered RIAs manage $100M+ and are not state-registered). State-registered RIAs are generally smaller firms: solo advisors, small partnerships, and boutique advisory firms managing between $25M-$100M in client assets. These firms often operate with minimal compliance staff (often zero dedicated compliance staff, the CCO function is the owner/advisor themselves). RIA compliance consultants (RIA Compliance Consultants, Compliance Alliance) charge $2,000-$5,000/year for annual compliance program management, but these retainer services primarily cover proactive compliance maintenance, not post-examination deficiency response. The state examination universe: if 5,000-8,000 state RIAs are examined over a 3-year cycle = 1,700-2,700 exams/year; a 40-60% deficiency letter rate = 680-1,600 deficiency letters/year. At $99-$249 per response tool: $67k-$400k potential annual revenue. Source: Investment Adviser Registration — RIA Compliance Consultants · State Licensed Investment Adviser — DFPI CA.gov
• The SEC's new Marketing Rule (Rule 206(4)-1, effective November 4, 2022) replaced the previous advertising and testimonial rules. State regulators have adopted or are adopting corresponding state-level marketing rules. The 2023-2025 examination cycle has heavily focused on Marketing Rule compliance as a new deficiency category, specifically: (a) testimonials and endorsements without required disclosures (material relationship disclosure, material conflicts of interest disclosure, compensation disclosure); (b) performance advertising with incorrect gross/net performance presentation; (c) hypothetical performance presentation without required policies and procedures. For small state-registered RIAs who were not aware of the November 2022 effective date or who assumed the new Marketing Rule applied only to SEC-registered RIAs, state examinations in 2023-2026 are generating a new wave of deficiency letters specifically around marketing compliance. This is the highest-frequency new deficiency category in state IA examinations 2023-2026. Source: Getting Started as a Registered Investment Adviser — Texas State Securities Board · How to Become an RIA in California — Altruist

When to bring in a professional

Self-serve responses fit routine cases: clear facts, amounts a business can absorb, and a deadline still ahead of you. Bring in a licensed professional when the amount at stake is large relative to their fee, the facts are genuinely disputed, criminal exposure is possible, or the deadline has already passed. A short paid consultation to sanity-check your plan is often worth it even when you handle the filing yourself.

All sources for this guide

1. Investment Adviser Examination Program in Connecticut — CT Department of Banking
2. State Investment Adviser Registration Information — NASAA
3. Investment Advisor Regulation: SEC and State Rules for RIAs — InnReg
4. Investment Adviser Registration — RIA Compliance Consultants
5. State Licensed Investment Adviser — DFPI CA.gov
6. Getting Started as a Registered Investment Adviser — Texas State Securities Board
7. How to Become an RIA in California — Altruist