SEC Publishes Its 2017 Compliance Priorities

Each year, the SEC’s Office of Compliance Inspections and Examinations (OCIE) publishes its priorities, and 2017 is no exception. On January 12, 2017, OCIE announced its examination priorities. Registered Investment Advisers (RIAs) and other financial entities will...

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RIAs Must Make Certain They Haven’t Inadvertently Taken Custody of Clients’ Funds or Securities

The SEC has found that Registered Investment Advisers (“RIAs”) may not realize they have custody. Custody” is defined as “holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them.” When an RIA takes custody of a client’s funds or securities, the risk to that person increases dramatically. The Custody Rule, found in Rule 206(4)-2 under the Investment Advisers Act, was passed primarily to protect clients from unscrupulous investment advisers. Nonetheless, well-intentioned investment advisers may not realize that their actions may trigger the application of the Custody Rule.

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RIA Disciplined For Failure to Conduct Annual Reviews

The SEC recently imposed sanctions on a Registered Investment Adviser (RIA) in Lexington, Kentucky, because it failed to conduct the required annual review of the firm’s policies and procedures. The firm also ignored its compliance manual, which stipulated that the RIA would conduct those annual reviews.

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SEC Will Examine RIAs That Employ Persons With a History of Disciplinary Events

On September 12, 2016, the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert which announced its intent to conduct examinations of Registered Investment Advisers (RIAs) that employ or contract with persons who have a history of disciplinary events. OCIE’s examinations will evaluate the effectiveness of the RIA’s compliance programs, supervisory oversight, and disclosures to clients and prospects.

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SEC Makes Changes to Enhance Information Reported by RIAs

On August 25, 2016, the SEC adopted amendments to several rules under the Investment Advisers Act and revised its registration and reporting forms. The amendments are designed to enhance the reporting and disclosure of information provided by Registered Investment Advisers (“RIAs”) to investors and the SEC.

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Client Complaints

Client complaints can negatively impact Registered Investment Advisers (RIAs) for years to come. Examiners expect an RIA to enact policies and procedures detailing how the firm will address complaints. These policies and procedures should demonstrate that the adviser takes all client complaints seriously and will attempt to resolve them.

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Investment Adviser Trading Practices

Registered Investment Adviser’s fiduciary obligation to its clients includes the obligation to implement policies and procedures that are intended to prevent and detect unauthorized trading in client and proprietary accounts.

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