SEC to Conduct ‘Presence Exams’ on Never-Examined Advisors

Excluded from the never-examined advisor initiative, however, was advisors to private funds, which are being examined pursuant to the "Presence Exam" initiative launched in October 2012.

Under the presence exams for private fund advisors, which are more narrowly focused than a traditional exam, Bowden said Wednesday that examiners performed close to 400 exams, "the number we wanted," which satisfied OCIE's goal of examining 25% of the new private fund registrants by the end of 2014.

"We will expand that [presence exam] process to other segments," Bowden said Wednesday. "We have a similar initiative for never-examined advisors in 2015; we are going to try and get out to a number of those advisors" in 2015.

Bowden said the presence exams, which typically take two-thirds of the time of a typical exam and zero in on specific issues, helped to "inform future initiatives," which includes the agency focusing heightened scrutiny on alternative mutual funds.

Alternative mutual funds, Bowden said, are "where the money is going," and of the more than 500 funds that now exist, "nearly half of them have been around for three years or less." The "newness" of the funds as well as the fact that some of the funds have been launched by those who are in the private fund arena, and "may not have experience with alternative strategies," warrants heightened scrutiny of this area, he said.

— Check out FINRA's Top Exam Priorities for 2015 on ThinkAdvisor.