Earlier this week, the Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (OCIE) issued a risk alert announcing the launch of a multi-year Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative. The OCIE, through the National Examination Program (NEP), will conduct examinations of SEC-registered investment adviser (RIA) firms and broker-dealers as part of the ReTIRE Initiative. These examinations “will focus on certain higher-risk areas of registrants’ sales, investment, and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed.”
The risk alert states that some of the key areas that the SEC examination staff will be focused on during these audits include:
- Reasonable basis for recommendations
- Focus will be placed on adhering to regulatory obligations as it relates to:
- Selecting the type of account
- Performing due diligence on investment options
- Making initial investment recommendations
- Providing on-going account management
- Focus will be placed on adhering to regulatory obligations as it relates to:
- Conflicts of interest
- Emphasis will be placed on reviewing whether:
- Compliance programs properly identify and address risks associated with conflicts of interest
- Material conflicts of interest are disclosed or otherwise addressed
- Emphasis will be placed on reviewing whether:
- Supervision and compliance controls
- Some areas the examinations may focus on include:
- Firms with operations in multiple branch offices
- Representatives with outside business activities
- Some areas the examinations may focus on include:
- Marketing and disclosure
- Marketing materials will be reviewed with emphasis on:
- The content of the materials and representations of representatives are true and accurate and do not omit material information where there is a duty to disclose
- Disclosures regarding the fees are complete and accurate
- Credentials or other endorsements are valid and meet any stipulated standards
- Marketing materials will be reviewed with emphasis on:
This latest announcement comes only a few months after the SEC OCIE released its 2015 RIA regulatory exam focus areas. In that announcement, the SEC listed the treatment of investors preparing for retirement and the examination of branch offices as two of its examination priorities for 2015. This latest release further confirms that both areas will continue to receive increased attention in the coming months and years.
As RIA compliance consultants, we strongly recommend that the Chief Compliance Officer (CCO) review this latest SEC risk alert to ensure that his or her firm is aware of and focused on adhering to all relevant investment adviser regulatory obligations noted in this alert.