The number of SEC examination of investment advisors decreased 4.4% in 2020—a year in which the agency was forced to move to remove exams because of the Covid pandemic.
But, in an annual report by its Enforcement Division released today, the agency said it viewed its examination program as successful in 2020.
"This small decrease, when viewed in light of the impact of the pandemic, is illustrative of the staff’s hard work, resiliency and dedication to the SEC’s and the division’s mission to protect investors," the agency said in the report.
The division examined 15% of RIAs in 2020, the report said. That number is up from 10% in 2014, but off the agency’s 17% high in 2018, the SEC reported.
In the last five years, the number of RIAs the division oversees increased from about 12,000 to more than 13,900, while RIA assets under management increased from about $67 trillion to $97 trillion.
More than 3,900 RIAs now manage $1 billion or more in assets; about 36% of RIAs manage a private fund; more than 55% of RIAs have custody of client assets; more than 60% of RIAs are affiliated with other financial industry firms; and about 11% of RIAs provide advisory services to a mutual fund, exchange-traded fund, or other registered investment company, according to the SEC.
The agency plans to prioritize exams of RIAs that have not been examined for a number of years, and those that have never been examined including new firms, with a particular focus on firms’ compliance programs, the agency said.
The SEC will also continue to prioritize exams of RIAs that are dually registered or are affiliated with broker-dealers or have supervised persons who are registered representatives of unaffiliated broker-dealers. Areas of exam focus include what compliance programs are RIA maintaining to address conflicts of interest from certain compensation arrangements such as proprietary and 12b-1 payments, outside business activities, best execution and prohibited transactions.
As for 2021, examiners will continue to focus their resources on compliance with the new investment advice rule Regulation Best Interest, Form CRS disclosure, and whether registered investment advisors have fulfilled their fiduciary duties of care and loyalty, the SEC said.
SEC exams have already “identified and notified hundreds of firms that they had failed to timely file a Form CRS,” the agency added.