Worried That Your Next SEC Audit Will End in Fines? TAKE THE ASSESSMENT

Now your advisors are working from home. So, have you reviewed their remote/branch office?

Now Your Advisors Are Working From Home. Reviewed Their Remote/Branch Office

As more aggregation takes place in the industry, more firms are supervising advisors located throughout the country.  Since the COVID-19 pandemic, this trend has only expanded leaving the operations of the business to be conducted nationwide.

The SEC has been reviewing this trend with great interest and growing concern. It has put in place initiatives to look at RIAs that are working out of multiple offices/locations to see if they are in compliance with the federal securities laws in light of the additional and unique risks that arise as a result of operating in this manner. The SEC expects these RIAs to adopt and implement written policies and procedures made to prevent and detect violations of the Advisers Act and/or the rules put in place by the RIA. During a review the SEC will evaluate the effectiveness of these processes in place for their branch offices.

The SEC’s main focus is around implementation of the following:

  • Supervision structure, including an assessment of how such supervision is set up for specific risks in particular branches
  • Role and empowerment of compliance personnel charged with overseeing branch offices, including their level of access to documents and relevant information
  • Accuracy of information on the adviser’s filings regarding branch offices, including Form ADV, as compared to actual practices

In addition, the staff may focus attention, based on the business activities of an examined adviser, on assessing compliance and testing controls in one or more of the following risk areas:

  • The adviser’s calculation of fees and other expenses, including the effectiveness of controls over the billing and invoicing processes and communications with clients.
  • Controls over advertisements, such as the adviser’s process for reviewing and approving advertisements, especially those created or distributed by its branch offices.
  • The implementation of the adviser’s code of ethics, including oversight and monitoring of personal securities transaction and whether there has been proper identification of access persons in branch offices.
  • Compliance with the Custody Rule, including controls related to the identification of accounts over which the adviser maintains custody and the involvement of branch office personnel in making such determinations.

The SEC staff will look at the way advisors make recommendations, especially in branch offices. They will look to ensure advisors are abiding by fiduciary standards by looking at the policies and procedures and the supervisory controls put in place to address certain risks.

They may also focus on the following areas based on different business practices:

  • Supervision and review of investment recommendations made to clients within specific branch offices and across branch offices, including processes and controls regarding investment authority, suitability of the investment advice, and any due diligence that the adviser has told clients they are doing in respect to investments.
  • Identification, management, and disclosure of conflicts of interest that come up in branch office activities, including conflicts around compensation arrangements and supervised persons’ outside business activities
  • Allocation of investment opportunities among client accounts, including how branch offices’ trading activity is monitored and what disclosures are made to clients.

Having branch and remote offices as part of your business model creates more risk and therefore closer examination by the SEC.  Are you prepared for your next examination?  Have you reviewed your branch and remote offices?  Will you be able to show the SEC that you have exercised supervision over your advisors?

Perhaps you haven’t been keeping up well enough.  My RIA Lawyer can help.  We routinely assist firms in branch and remote office reviews. Give us a call today.

Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

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