The Securities and Exchange Commission Thursday announced a new initiative to review never-examined investment advisors who’ve been registered with the agency for the last three years.
Included with the catch-up oversight will be risk-assessment and focused exams.
Risk-assessment exams will concentrate on overall business activities and emphasize an advisor’s compliance program, including documents needed to evaluate representations made on disclosure documents.
Focused exams, by contrast, will zero in on one or more of the following areas the agency sees as potential sources of “higher risk”:
• compliance, with a focus on conflicts of interest and books and records;
• marketing, which will look for potentially misleading statements;
• portfolio management, to determine whether there has been any unlawful favoritism in the allocation of investment opportunities; and
• safety of client assets, which will evaluate potential custody problems.
Starting later this year, the SEC will invite never-examined advisors to attend regional meetings where they can learn more about the examination process.
Investment Adviser Association lobbyist Neil Simon praised the move as an important step.
The more RIAs who are examined, said Simon, the greater compliance there will be.
Advisor Ric Edelman praised the move, but noted the number of advisors has grown faster than the SEC’s budget.