SEC Examination Focus on Investment Adviser “Dual Registrants”

August 19, 2014

Earlier this year the Securities and Exchange Commission (“SEC”) National Exam Program (“NEP”) published its Examinations Priorities for 2014. “Dual Registrants” was listed as one of the most significant initiatives across the entire NEP. This is the second year in a row that the NEP has referenced dually registered investment advisers and broker-dealers in its published examination priorities. This focus does not only apply to firms that have both a broker-dealer registration and an investment adviser registration but it extends to any investment adviser firm whose representatives are also licensed as representatives with a broker-dealer. The 2014 release indicates that, “The convergence among broker-dealer and investment adviser representative activity continues to be a significant risk. For example, representatives of dual registrants, i.e., registrants that are both broker-dealers and investment advisers, and affiliated advisers and broker-dealers may influence whether a customer establishes a brokerage or investment advisory account. This influence may create a risk that customers are placed in an inappropriate account type that increases revenue to the firm and may not provide a corresponding benefit to the customer.”

Investment adviser firms that have individuals who are also registered with a broker-dealer need to be aware of the compliance challenges faced by allowing this activity as well as the conflicts of interests that exist. These investment advisers need to have policies and procedures in place to specifically address these conflicts of interest and to provide its representatives with the investment adviser’s policies for determining when a client should be placed in a brokerage account versus an advisory account. An investment adviser’s policies and procedures should also address how it will supervise and monitor these activities

On August 21, 2014 at 12:00pm CDT, RIA Compliance Consultants will present a webinar, “Compliance for Independent Registered Investment Advisers with Representatives also Registered with a Broker-Dealer.” During this webinar, we will discuss the compliance challenges and conflicts of interests investment advisers face by allowing dual registration. We will provide insight and examples from examination letters of investment advisers that have faced regulatory scrutiny regarding these issues during the examination process. Additionally, we will provide some tips and best practices for implementing compliance policies and procedures to address dual registration as an investment adviser and representative of a broker-dealer. The cost to attend this webinar is only $69.95. Click here to register now.

Posted by Bryan Hill
Labels: Dual Registrations, SEC, SEC Inspection