Cohen & Buckmann, P.C.
Cohen & Buckmann, P.C.



Customize your IA Compliance Program:  SEC Stresses Specific Risks

Customize your IA Compliance Program: SEC Stresses Specific Risks

by Lauri B. London

Late July 2019, the Office of Compliance and Examinations issued a Risk Alert  after conducting over 50 examinations of investment advisers with primarily retail clients that had reported some type of legal action involving their supervised persons.  The focus was on the advisers’ compliance programs and supervisory oversight practices, disclosures and conflicts of interests. Firm-wide supervisory practices were reviewed.  

Deficient Policies and Procedures:

OCIE noted deficiencies in several advisers’ policies and procedures, books and records and disclosures to clients, particularly with regard to conflicts of interest.

  • Disclosures regarding the supervised persons’ disciplinary events

    • Often stemmed from policies relying on the supervised persons to self-report

  • Identifying and assessing risks stemming from the hiring of such individuals

    • Including a lack of firm due diligence for new hires

  • Setting firm-wide standards of conduct, including documenting responsibilities and/or expectations

  • Adopting P&Ps to supervise individuals subject to standards of conduct.

    • Inadequate disclosures of fees charged and services performed, as well as distribution of advertising not in compliance with the Advertising Rule.

  • Monitoring and supervision of the individuals charged with compliance oversight, and lack of documentation of monitoring compliance.

  • Disclosures regarding compensation practices, conflicts of interest and management fees.

  • Annual Reviews which were not documented, or which did not adequately assess and identify risks. 

What To Do Next?

As a result of these findings, the staff recommends that advisers

  • Adopt written P&P for new hires with disciplinary events or history.   Should include firm due diligence, appropriate disclosure and investigation into the impact on the individual’s ability to obtain a license.

  • Establish heightened supervision practices for oversight of supervised persons with disciplinary histories.  Some advisers do not have specific oversight for these individuals; those that do were found to be more likely to identify misconduct.

  • Adopt written P&P for client complaints related to supervised persons.  Advisers with such policies are more likely to escalate issues raised in client complaints than advisers without such protocols.

  • Ensure oversight of persons operating out of remote offices, particularly those with disciplinary histories.

  • Follow P&Ps and adequately document steps taken and any issues noted.  Document relevant follow up.

Review the full OICE Risk Alert here .