• failure to oversee of portfolio management practices, including Regulation Best Interest and suitability of investments, improper trading, allocation of investment opportunities, and handling of trade errors.
• failure to identify and manage conflicts of interest.
• failure to supervise fee billing practices.
• failure to effectively enforce RIA’s codes of ethics;
• identification and supervision of personnel with disciplinary histories.
• oversight of advertising practices (including for personnel operating under a “doing business name” different from the supervising advisor).
• violations of the custody rule.
“Given the potential regulatory liability resulting from such risks, advisers must take inventory of and, as appropriate, bolster their procedures and processes to ensure that personnel who work remotely are being properly supervised,” Chen said.
Chen warned advisors not to follow a “one-size-fits-all approach” and suggested that advisory firms should consider centralizing certain functions, such as trading, fee billing and client service, so that functions are being performed from a single office.
“This could go a long way to reducing or eliminating any inconsistencies in how such functions are being handled across the firm, which could mitigate not only compliance risk, but also other business risks. Such centralization may also result in operational efficiencies and cost savings,” Chen said.
If centralization isn’t possible, Chen recommended that supervisors from each location meet regularly to report on how supervised functions are being handled. “This could eliminate inconsistencies in the application of firm’s operating procedures and allow supervisors to hold one another accountable for performing their supervisory responsibilities,” he added.