SEC’s Exam of Unexamined RIAs
The SEC Tells Us They’re Coming
The SEC announced an initiative of those advisers that have not been audited. Keep reading for details about the two very different methods they’ll use to examine RIAs.
● Broader review of the advisors’ practices will enhance the SEC’s understanding of the compliance program and other pertinent documents like Form ADV
The SEC will likely ask for:
a) Compliance process and plan;
b) Impending, threatened or settled arbitration or litigation that concerns the RIA or any “supervised person;”
c) Standard advisory contracts or agreements; and
d) Marketing pieces, pitch books or presentations.
● Wide-ranging threat-based exam focusing on higher danger area of commerce and process selected for exam. These include:
1) Compliance Plan – How effective is the plan? The SEC will assess books and records for conflicts of interest and compliance related risks. Has a competent CCO been given the power to accomplish this goal?
2) Reports/Disclosure – Has evidence that pertains to possible and actual conflicts been revealed to existing and potential clients? The Securities & Exchange Commission will also look at advisers’ filings, as well as documents related to conflicts of interest, advisers’ business practices and investing.
3) Promotion and Marketing – Are business or investment advertising pieces accurate? advertising pieces accurate concerning business or investing results? Were there any related falsifications or oversights?
4) Investment Administration – Do investment decisions result in conflicts or violate representations made to clients? An example of this includes divvying up of investment prospects.
5) Safekeeping Customer Assets – When advisers have “custody” of assets, it is they advisers who are accountable for either the theft or loss of money and investments. Will the RIA be deemed a custodian? A handful of clients are enough to require SEC mandated audits.