Lori Richards Provides Insight to SEC Exam Focus

May 05, 2008

Reading time : 3 minutes

On March 20, Lori Richards, Director – SEC’s Office of Compliance Inspections and Examinations, delivered a speech explaining the SEC’s current registered investment advisor examination priorities. The speech highlights the “top 10” areas of focus during routine examinations. While not an official statement from the SEC, Ms. Richards’ speech provides excellent insight into the current mindset of the SEC Office of Compliance Inspections and Examinations.

It is important to note that the focus of an SEC examination will largely depend on a registered investment advisor firm’s actual business operations, services, arrangements, policies and procedures. However, all registered investment advisor firms can benefit from reading Ms. Richards’ speech in its entirety so that the areas of emphasis are understood and your firm can be prepared. Registered investment advisor firms should make sure the following areas are covered in their written policies and procedures and analyzed during the firm’s annual assessment. The following is the top 10 according to Ms. Richards with highlights provided by RIA Compliance Consultants. To read Ms. Richards’ speech in its entirety, click here.

1. Controls Over Valuation. How does the firm value securities? Particularly illiquid, private and other hard-to-price securities.

2. Controls Over Non-Public Information/Personal Trading/Code of Ethics. The SEC is focusing on personal securities transactions during its reviews. Policies to protect client information is also a priority of the SEC.

3. Dealing with Senior Investors. This continues to be a hot topic for both the SEC and state regulators.

4. Compliance and Supervision. Does the program effectively manage and control various compliance risks? Are all advisor representatives and branch offices properly supervised?

5. Portfolio Management. Are management services consistent with client mandates? Are they consistent with client objectives and restrictions?

6. Brokerage Arrangements and Best Execution. Is the registered investment advisor seeking best execution? Does the firm document its best execution reviews? Are arrangements properly and fully disclosed to clients, including services received from broker/dealers?

7. Allocations of Trades. Are all clients treated fairly and investment opportunities allocating consistently?

8. Performance Advertising, Marketing, and Fund Distribution Activities. Are there proper controls to review and approve marketing materials? Can performance numbers be justified and supported? This is a historically hot topic during SEC examinations and an area that consistently results in deficiencies.

9. Safety of Clients’ and Funds’ Assets. This area includes a focus on the safeguarding of client assets from theft.

10. Information Processing and Protection (books and records, disclosures, and filings). Does the firm have all required books and records? Are those records properly maintained and protected in the event of a disaster? Are all potential conflicts of interest disclosed to clients? Has the firm complied with applicable regulatory filings?

Included in the many services offered by RIA Compliance Consultants, Inc. are mock regulatory examinations and annual compliance program assessments. These services are provided with a goal of assisting registered investment advisor firms comply with applicable rules and regulations and prepare for SEC examinations. If you are interested in these services, please give us a call today.

Posted by Bryan Hill
Labels: Compliance Program, Regulatory Inspections, SEC