SEC is Scrutinizing RIAs’ Remote Work for Violations, Attorney Warns
Failure to supervise a remote advisor led to IFP Advisors recent $400,000 Fine
The SEC is focused on the regulatory risks associated with advisors with personnel working from home or other locations other than their firm's central office, securities attorney Richard L. Chen warned in a new blog.
The risks of the SEC zeroing in on ethics, Regulation Best Interest and failure to supervise violations “are particularly acute for advisers with multiple branch offices that utilize different operating procedures among the offices and advisers that supervise IARs who work remotely and manage their own books of business under the adviser’s umbrella,” Chen said in a column that was sent to the Investment Adviser Association’s membership on Thursday.
The agency began focusing on pandemic work-at-home and branch arrangements during the early days of Covid shutdowns and found numerous compliance deficiencies during exams of advisors with multiple branch offices. The SEC reported its examiners’ findings in the form of a risk alert in late 2020.
Advisors “must identify and address the new challenges and risks associated with a dispersed work environment—including the increased challenge of supervising personnel working remotely,” Chen said.
“Advisers should also be aware that the firm’s obligations extend not only to its employees, but to any person including any independent contractor who is deemed to be a supervised person of the advisor,” the attorney added.
The heightened surveillance resulted in an enforcement action against IFP Advisors LLC, a Tampa, Fla.-based advisor firm with $10 billion in AUM, that the SEC charged August 10 with failing to supervise a now former investment advisor representative who the agency found engaged in a fraudulent “cherry-picking” scheme. The firm settled the charges for a $400,000 civil penalty without admitting or denying the charges. The advisor was hit with an $800,000 fine and an industry bar,
The SEC alleged that from January 2011 to at least December 2018, IFP’s former advisor rep, Richard Keith Robertson, 54, of Del Mar, Calif., worked remotely and engaged in a cherry-picking scheme where “he unfairly allocated purchases of securities between his personal and family accounts and his other IFP clients’ accounts. Robertson disproportionately allocated profitable trades to his personal and family accounts and disproportionately allocated unprofitable trades to his other advisory clients.”
As for Robertson, not once during his eight years with IFP was he subject to a branch office audit by the firm, the SEC found. Rather, IFP’s “limited supervision of Robertson” consisted of accepting annual attestations from him and copies of his brokerage records, without reviewing his trading as required by IFP’s own compliance manuals.
Chen said the SEC is concentrating on violations that the agency found during its sweep exams of 40 RIAs in 2020, including the following: