The Enforcement Division will review whether these firms “effectively mitigate and address conflicts and minimize the risk of, and monitor for, misaligned incentives that may result in recommendations and advice to retail investors, such as seniors and working families that is not in their best interest,” the SEC added.
On the broker-dealer front, the agency said its exams will review firms’ recommendations and sales practices related to SPACs, structured products, leveraged and inverse exchange traded products (ETPs), REITs, private placements, annuities, municipal and other fixed income securities, and microcap securities.
The agency also plans to zero in on “cost and reasonably available alternatives as they relate to recommendations being in the investor’s best interest. Examinations will also evaluate the compensation structures for financial professionals, and may focus examinations on the sales of securities by financial professionals that are highly compensated,” the SEC added.
With more than 5,000 SEC-registered investment advisors—a full 35% of the RIA industry—managing about $18 trillion in private fund assets, advisors who work with private funds can expect continued scrutiny, the agency said. RIA private-fund assets have increased 70% of the past five years alone, the regulator said.
“Given the significance of examination findings over the past several years, and the size, complexity, and significant growth of this market, the division will continue to prioritize our focus on RIAs to private funds,” focusing on fees, expenses, valuations, conflicts of interest and risk disclosure, the SEC said.
The Enforcement Division will also continue to focus on ESG-related advisory services and investment products, including whether RIAs are “overstating or misrepresenting the ESG factors they use” to select investments and whether their disclosures and proxy votes align with their ESG policies, the SEC said.