The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently issued its examination priorities for 2019. Those priorities are very similar to the 2018 priorities, with one notable change coming from digital assets and blockchain receiving their own category this year. In the following paragraphs, we’ll highlight key points from the SEC’s 2019 priorities, but first, let’s discuss what’s on the mind of many advisors.
The Federal Shutdown
As of this writing, the federal government shutdown remains in place and advisors have been asking us, “How does the government shutdown affect SEC examinations?” The SEC released a statement recently saying they “will have a very limited number of staff members available.” They also said the government impasse will limit the number of examinations that they’re able to conduct, and when they do conduct examinations, they’ll often be limited to a quick phone call instead of an onsite examination.
However, for advisors, it should be business as usual, and that means remaining compliant and always acting in a client’s best interest. To help achieve that goal, let’s take a look at where the SEC is focusing for 2019.
For 2019, the SEC has targeted six key risk areas as its main priorities:
1. Matters of importance to retail investors, including seniors and those saving for retirement
2. Compliance and risk in registrants responsible for critical market infrastructure
3. Select areas and programs of FINRA and MSRB
4. Digital Assets
6. Anti-Money Laundering
Of the six listed, the one that really impacts Beacon and most of our advisors is retail investors, including seniors and those saving for retirement. This topic is at the core of an advisor’s fiduciary responsibilities and the SEC has outlined key areas of focus regarding retail investors.
Fees and Expenses. The SEC will be looking closely at fees and expenses to see if advisors are transparent in their transactions and are properly disclosing investment costs to investors. Of particular note will be wrap fee programs and how fees are bundled.
Conflicts of Interest. The SEC will also continue to zero in on conflicts of interest and will investigate relationships between investment advisors and broker-dealers as it relates to compensation arrangements and financial incentives.
Never-Before or Not Recently-Examined Investment Advisers. If you’ve never had an SEC examination or you have recently filed as an RIA, you can expect that you’re going to get examined within the first 18 months to two years. Also, if you haven’t been examined in the last five years, you can expect an examination in the near future because the SEC likes to check in at least once every five years.
The Bottom Line
No matter where you are in your business life cycle, you can expect to have an SEC examination is in your future. At Beacon, we have developed policies and procedures that you can implement and test to help ensure you are following the SEC guidelines. If you want to learn more about those tools and have a deeper understanding of how to prepare for an SEC examination, contact your wholesaler today!
• 2019 SEC Examination Priorities
• Top 10 Tips to Help You Prepare for Your RIA Regulatory Audit
• How an RIA Firm Can Create a Culture of Compliance