As SEC Onsite Exams Hit Fever Pitch, Here's What RIAs Need to Know

They “should be conducting a review of their compliance programs via a compliance evaluation or mock SEC exam,” she said. “They especially need to conduct mock SEC interviews with key staff so that there are no surprises during an actual SEC interview.”

More Routine Exams

ACA Group is also seeing more onsite exams, according to Roseanne Harford, Director of Thought Leadership at ACA, as the agency gets “back to a more routine type” of exam.

“Most of the document reviews are conducted offsite and ahead of the exams. Certain types of exams, like new registrant exams, are typically offsite,” Harford relayed via email.

Examiners, Harford said, are paying close attention to whether:

• policies and procedures are sufficiently customized to the firm’s business;
• advisors can produce adequate substantiation for marketing claims;
• the use of hedge clauses in contracts with clients waive or limit the adviser’s fiduciary duty; and
• confidentiality clauses in fund documents comply with the whistleblower protection rule.

On the Regulatory Front

At an event this week on Capitol Hill titled ”Regulatory Onslaught? A Look at Investment Advisers and the SEC Agenda,“ sponsored by Charles Schwab, Republican SEC Commissioner Mark Uyeda said that as to the more than 50 rule proposals the SEC has on its docket, the agency “hasn’t done any analysis of the cumulative effect of all of these” rules.

“I look at regulation like a really long cargo ship that’s probably best not to make rapid moves,” Uyeda said. “You can’t be a speedboat, just zigzagging in and out. I don’t think that’s healthy for the industry. I don’t think it’s healthy for investors. I think it makes it really difficult for people to try to comply with our rules — today it’s X, tomorrow it’s Y.”

As the agency puts “more rules on, it’s really being done without their input,” Uyeda said, referring to the smaller investment advisors.

Jon Beatty, head of advisor services at Charles Schwab, said during the event that “advisors are playing a more important and growing role in the financial security of Americans today,” adding that the RIA industry “is the fastest-growing segment” of financial services.

Advisors, Beatty continued, represent over 50% of Schwab’s assets and 25% of Schwab’s revenues.

“As the industry has grown and become more complex,” he said, “we see the opportunity for better regulation for this industry.”

As the industry’s leading custodian, Beatty added, “we want good regulation that really supports the growth of RIAs and their ability to serve their clients as fiduciaries.”