Page 42 - Investment Advisor - September 2023

COmplIANCe COACH

By Thomas D. Giachetti

Beware, the seC Is Coming for You!

The current administration seems to believe advisors get paid too much for
doing too little; the industry must push back.

eware! Never before have I seen to the advisor even when there is no
a more aggressive Securities and express support for same, or the commis-
BExchange Commission. They’re sion’s findings appear to be contrary to its
coming for all advisors. Their mission: own Act, Rules, or published guidance.
to cause financial pain. In addition, too many examiners
“Tom, come on, you can’t be serious,” continue to lack the necessary work-
you’re probably saying. Oh, but I absolute- ing knowledge of the industry that they
ly am. I warn advisors not because I or my are charged with examining, which can
firm are trying to “scare up” more clients. prove very frustrating to those examined.
On the contrary; I am in the latter SEC exam findings’ letters are unfor-
stages of my career, and I am troubled by tunately too often way too aggressive,
what I see on an all-too-frequent basis. I construing “alleged” inadvertent errors/
feel compelled to speak out on behalf of nation process. Plus, the SEC does not omissions as clear breaches of an advisor’s
the industry that I admire and respect. discriminate between big and small, fee- fiduciary duty and Act/Rule violations.
I truly wish I didn’t have to write this. only and fee-based advisors. Moreover, Be careful when responding to such
During the past 35 years, I have most given the transition to remote exams, letters to make clear where you might
likely been through more SEC exams than the examination process can take in respectfully disagree with any of the
any attorney in the country. Although I excess of one year from start to finish. findings and/or an assertion that you
have not counted, I assume that it is sub- What the SEC continues to clearly miss have breached your fiduciary duty to the
stantially in excess of a thousand exams. is that advisors are spending more time client. Do not agree with such miscon-
There’s something profoundly dif- and resources on compliance — but not duct when you earnestly believe such a
ferent about the SEC under the Biden for the benefit of their clients. It’s only for finding to be inappropriate.
administration — and not for the bet- them to be better positioned to complete a The SEC has a job to do: protect
ter. It is much more progressive and prospective overly aggressive SEC exam. the investing public. I respect and sup-
aggressive relative to the advisors that port that mission. When it is clear that
it regulates. This administration seems don’t Be AFrAId to PusH BACK an advisor has engaged in misconduct,
to believe advisors get paid too much for What do I mean by financial hardship, prosecute them.
doing too little — and the industry must which I referred to at the start of my piece? That said, please remember that advi-
disabuse the commission of such a belief. The commission’s examination objec- sors provide a valuable service to those
These troublesome changes are not tive appears to seek to cause advisory that the commission seeks to protect;
devised at the SEC’s branch levels. firms to reimburse clients for a myriad of they are not potential predators, but
The vast majority of branch employees issues, including client fee/billing pro- hardworking professionals who seek to
are fair-minded hardworking profes- cess, inartful drafting of (or conflicts serve their clients to the best of their
sionals who are charged with carrying between) Part 2A or advisory agreements abilities every day.
out the directives of the commission’s (inartful drafting will be construed Yes, mistakes are made, both advisors
C-Suite leadership. against the advisor), minimum fees and and regulators are human. The SEC and
During current examinations, advi- charging on assets for which the advisor the advisory industry are comprised of
sors are too often presumed to be poten- does not maintain trading authority. good people deserving mutual respect.
tial financial predators, seeking to take At the same time, the SEC seeks the
advantage of their clients where and eradication of any advisory agreement Thomas D. Giachetti is chairman of the
whenever possible. provision whereby an advisor seeks to Investment Management and Securities
The onus is on the advisor to dispel limit its liability, and it continues to inter- Practice Group of Stark & Stark. He can be Adobe Stock
such presumptions during the exami- pret Act and Rule provisions contrary reached at [email protected].

40 Investment AdvIsor September 2023 | thinkAdvisor.com