Watch Remote Offices
Jacko also suggested that firms with multiple locations or branches should “standardize” their practices and policies for all their offices. The move to a remote working office has shown the risks that arise by running operations from multiple places, she said. “Folks don’t necessarily do things the same way as the home office. That’s the challenge.”
For example, firms may compute advisory fees differently, Jacko said. “One office may aggregate a household for the purposes of fee break points in one way, while another office is doing it with a completely different definition of [a] household. You need to think about policies and procedures at an enterprise level,” she said.
In the SEC’s examinations of 40 investment advisors with multiple offices, the “vast majority” of the advisors were cited for at least one compliance deficiency and more than one-half were cited for deficiencies related to portfolio management practices, according to an SEC November 2020 Division of Examinations risk alert.
Perlow said it’s also important for firms to harmonize their disclosures for environmental, social and governance investment activity. “ESG is probably one of the biggest secular trends that we as a firm have been seeing. The SEC has not been ignoring this trend” and has made ESG a priority for the Division of Examinations again this year.
The SEC’s Snyder said: “Like any other strategy, we are looking to see whether the disclosure and the marketing around the strategy matches up with what’s happening in practice. As an example, if a firm is stating that they exclude certain stocks … do they have mechanisms in place to ensure that those securities are being excluded from the portfolio?”
Advisors should consider how their approach to ESG will affect trading and proxy voting in addition to portfolio management and marketing and ensure disclosure and practices are consistent throughout their enterprises, Jacko said.
Snyder also advised advisors to ensure their policies and disclosures about private funds are adequate. “Private funds are an important part of the portfolio we cover. Almost 36% of the advisor population manages one or more private funds,” she said.
In terms of new priorities for 2021, the Division of Examinations will be looking at the impact of the market volatility, focusing on firms that may have been harder hit by the pandemic because they own commercial real estate or certain structured products.
In addition, the SEC will continue to review advisors’ “bread and butter” areas. “What’s surprising,” said Snyder, “is that we continue to see issues around undisclosed fees and expenses” even in light of enforcement activity in the past.