2024 SEC Examination Priorities: What RIAs Need To Know

The U.S. Securities and Exchange Commission (SEC) has once again unveiled its 2024 Examination Priorities. This annual release is a crucial document for registered investment advisors (RIAs), serving as a roadmap to understand the SEC’s focus areas and potential pitfalls to be avoided. In this comprehensive guide, we’ll delve into the key findings from the SEC’s examination priorities for 2024 and discuss the essential role of AdvisorLaw in maintaining ongoing compliance and expert guidance for your firm. 

Investment Advisers In The Spotlight

The SEC continues to uphold the required core duties of care and loyalty that RIAs owe to their clients. These two duties both lead to the requirement to act in the best interest of clients, avoiding any conflicts of interest that could compromise the quality of advice. The SEC’s 2024 priorities underscore this commitment and focus on several critical areas:

  • Complex Products: The SEC is closely scrutinizing advice provided on complex products, especially derivatives and leveraged exchange-traded funds (ETFs). The focus is on how these products are recommended and whether clients are adequately informed about the risks and benefits involved.
  • High-Cost & Illiquid Products: Particular attention is being given to high-cost and illiquid products, such as variable annuities and non-traded real estate investment trusts (REITs). Ensuring that clients fully understand these investments is crucial.
  • Unconventional Strategies: RIAs offering unconventional strategies, particularly those marketed to older investors and those saving for retirement, are under scrutiny. This is especially relevant in addressing issues like rising interest rates, where clients need to be fully aware of the potential risks involved.

The Crucial Role Of Compliance

In the wake of these priorities, maintaining robust compliance programs is more critical than ever for RIAs. Your compliance programs must be tailored to the complexity of your business, your client base, and the current market risks. Below are specific areas of focus.

  1. Marketing Practices: Your marketing materials must strictly adhere to the rules, and all disclosures must be accurate and complete. Transparency in marketing practices is essential.
  2. Compensation Arrangements: The SEC will assess your compensation practices, particularly those related to fees and alternative revenue sources. Transparency regarding how you generate revenue is of paramount importance.
  3. Illiquid Asset Valuation: If you recommend illiquid assets, the SEC expects a thorough evaluation of your valuation practices to ensure that clients’ investments are fairly assessed.
  4. Safeguarding: Your controls for protecting client information must be robust, particularly in situations when multiple advisers share offices, or you have high employee turnover.
  5. Disclosure Assessments: Regularly check the accuracy and completeness of regulatory filings, including Form CRS. Accurate disclosures are vital to maintaining trust with your clients.

Advisers To Private Funds Under Scrutiny

The SEC’s focus extends to advisers to private funds, with specific scrutiny in areas, including:

  1. Portfolio Management Risks: Recent market volatility and rising interest rates are pivotal concerns. Private funds experiencing poor performance, significant withdrawals, and valuation issues will be examined more closely.
  2. Contractual Requirements: Compliance with contractual obligations, including advisory committees or advisory boards, will be emphasized. Adherence to notification and consent processes is crucial.
  3. Fees & Expenses: Ensuring the accurate calculation and allocation of private fund fees and expenses, along with appropriate disclosures, is of utmost importance. Transparency in your fee structure is key.
  4. Due Diligence Practices: Consistency in your due diligence practices, especially concerning private equity and venture capital fund assessments, is essential. Clients need to trust that you’re making well-informed investment decisions.
  5. Conflicts, Controls, & Disclosures: Private funds managed alongside registered investment companies will receive special attention. The SEC is keen on ensuring that conflicts are appropriately managed, controls are in place, and disclosures are accurate.

Importance Of Investment Companies

Registered investment companies, including mutual funds and ETFs, are a focal point for the SEC, due to their significance to retail investors, especially those saving for retirement. Examinations encompass a wide range of topics, including compliance programs, fund governance practices, and disclosures to investors. Some areas of specific examination are:

  1. Fees & Expenses: Establishing effective compliance policies concerning advisory fees is paramount. This includes oversight of different share classes and fee structures, as well as monitoring fees relative to performance.
  2. Derivatives Risk Management: Compliance with the SEC’s fund derivatives rule is under scrutiny. Your risk management programs must be robust, and disclosures related to the use of derivatives should be complete and accurate.
  3. Market Dislocations & Volatility: The SEC will address issues associated with recent market volatility and ensure that liquidation procedures are followed correctly.

AdvisorLaw: Your Partner In Compliance

Given the stringent examination priorities laid out by the SEC for 2024, it is clear that expert compliance is an absolute necessity for RIAs and investment companies. This is where AdvisorLaw comes into play as your trusted partner in navigating the complexities of compliance.

AdvisorLaw specializes in making sure that your practices align with the SEC’s expectations. Here’s how AdvisorLaw can help:

  1. Comprehensive Compliance Support: AdvisorLaw provides a wide range of services to help your firm maintain compliance. Whether it’s reviewing marketing materials, assessing compensation arrangements, or providing guidance on proper testing of your compliance program, based on your needs, AdvisorLaw offers expert guidance to ensure that your compliance practices meet the highest standards.
  2. Outsourced Chief Compliance Officer (CCO): AdvisorLaw can even provide an outsourced chief compliance officer (CCO) for your organization. We’ll assign a dedicated compliance professional to oversee the compliance of your operations, manage risks, and keep you up to date with regulatory changes.
  3. Form CRS Compliance: Making sure that your Form CRS is accurate and complete is a key area of focus. AdvisorLaw can assist in your efforts to keep your regulatory filings in line with regulatory compliance, providing confidence to your clients.
  4. Conflicts Of Interest Management: AdvisorLaw assists with identifying and addressing conflicts of interest, helping you to mitigate or eliminate them, when appropriate.
  5. Compliance Program Reviews: AdvisorLaw will help you to conduct regular reviews of your compliance program, to assess the effectiveness of addressing conflicts of interest arising from your business arrangements or affiliations.

With AdvisorLaw as your partner, you can navigate these priorities effectively and keep your firm operating with the highest level of regulatory compliance. Stay ahead of the curve, and protect your business, clients, and reputation with AdvisorLaw by your side. Don’t leave compliance to chance — choose AdvisorLaw as your trusted partner, and safeguard your business’s future.

Contact us today for a complimentary consultation.

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