The Securities and Exchange Commission has unveiled its Never-Before-Examined Initiative, which will allow it to look at registered investment advisers that have yet to be examined. The SEC shared details of its plan in a letter to these unexamined advisers, of which there are about 4,000. Some of these firms have been registered with the regulator for more than three years.
The SEC says it intends to inspect a significant number of the advisers who haven’t been examined yet but that the agency will place its emphasis on those who have been registered for at least three years. Its initiative will employ two approaches-focused reviews and risk assessment. The former will look at RIAs’ compliance programs, disclosures, filings, portfolio management, marketing, and client asset safekeeping:
Compliance Programs: Examiners will look at the effectiveness of an RIA’s compliance program. They will also review records and advisory books to figure out if an adviser has properly identified interest conflicts and risks, put into place the appropriate measures and procedures and policies to manage and mitigate both, and hire a competent Chief Compliance Officer.
Filings/Disclosure: NEP (Never-Before-Inspected) staff will assess filing disclosure documents to make sure adequate information is provided to help clients make informed choices about whether to get into an advisory relationship.
Marketing: Staff will look at marketing materials to assess whether there are any false or misleading statements or if material facts were omitted.
Portfolio Management: NEP staff will study a RIA’s portfolio decision-making practices to make sure the adviser fulfills its duty to act in the clients’ best interests and disclose and mitigate any material conflicts of interest.
Safety of Client Assets: Advisers with “custody” of client assets must make sure that they execute specific measures to protect against loss or theft. NEP staff will also make sure this compliance meets the requirements of the Advisers Act and other applicable laws.
With the risk-assessment approach, the SEC would seek to better comprehend a registrant, which would include a high-level review of an adviser’s business activities.
Please contact our investment adviser fraud law firm today. We can help you assess whether you have reason to pursue a securities case.
SEC unveils plan to investigate never-before-examined RIAs, Investment News, February 20, 2014
Read the SEC’s letter to RIAs (PDF)
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