Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny

According to the Securities and Exchange Commission Office of Compliance Inspections and Examinations Director Andrew J. Bowden, next year the regulator intends to examine about 4,000 registered investment financial advisors who have never been visited by its inspectors before. Bowden said that the agency will target about 50% of firms that have yet to be examined. Some of these investment advisers have been registered for over three years.

Of the close to 11,000 financial advisors that the SEC oversees, nearly 40% have never undergone inspection by the regulator. Still, some are questioning whether Bowden’s office even has the resources to perform all these inspections.

In InvestmentNews, Ascendant Compliance Management partner Keith Marks lists the compliance issues that these yet to be inspected RIAs should deal with now so that they are ready should the agency come knocking:

Form ADV disclosures, other documents: The SEC will want detailed outlines and information regarding firm procedures and policies and facts. Examiners will ask for Form ADV disclosures and other documents.

Technology controls: Expect examiners to check for adequate risk controls and technology testing. SEC director Bowden has said that compliance issues involving technology are expected to be a big issue in 2014.

Marketing: Examiners may consider marketing materials and investment performance disclosures that contain superlatives that are “seemingly innocuous” to be deficiencies.

Personal securities trading: The SEC will want to know about the holdings and personal securities transactions of certain employees. Examiners want to make sure that advisers are abiding by federal rules and have a written code of ethics.

Custody rules: Advisers that hold client funds have to meet certain requirements for choosing a proper custodian and recordkeeping. SEC examiners will likely consider any custody violation as an indicator of possible fraud.

The interview: Marks said that a common question that examiners will ask is “what are your biggest concerns?” He noted that while it is important to respond honestly, during an interview with examiners the interviewee should try to keep the conversation focused on issues that are already being proactively handled.

Our investment advisor fraud law firm represents individual and institutional investors throughout the country.

6 ways to bullet proof your practice from the SEC, Investment News, November 1, 2013

Office of Compliance Inspections and Examinations, SEC

Office of Compliance Inspections and Examinations Investment Adviser Examinations: Core Initial Request for Information, SEC

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