Staying Compliant: Key Takeaways From The SEC’s Recent Webinar

The SEC recently held a webinar focused on exam priorities and what advisors can expect during the examination process. Here’s a breakdown of the key takeaways for registered investment advisors (RIAs) focused on staying compliant with SEC priorities.

Exam Priorities

• Emerging & Perennial Risks: The SEC remains vigilant in areas like conflicts of interest, with a focus on compensation arrangements and how advisors make money. Senior investors and retirement savers will receive particular attention, requiring advisors to prioritize clients’ best interests and risk tolerance.
• Private Funds: Accurate fee calculations, illiquid asset evaluations, and offsetting fees and expenses are crucial for private funds. The SEC will scrutinize disclosures regarding conflicts, reporting, custody, portfolio management, and financial statements delivered to investors.
• Marketing Rule: Adherence to the new marketing rule is a major focus area. This includes clear and compliant use of testimonials, social media marketing, and hypothetical performance presentations.
• Cybersecurity: Robust cybersecurity protocols are essential. Firms must understand potential breaches, implement vendor due diligence, and have a business continuity plan in place. Additionally, staying updated on AI-related risks is critical. AI is a growing frontier that the SEC is still examining and seeking to regulate. 

What To Expect During An Exam

• Exams can be remote or onsite and typically last several months. However, since the end of Covid-19, the SEC is looking to do more in-person exams. Be prepared for an exit interview and a potential deficiency letter requiring a response within 30 days.
• Maintain up-to-date compliance manuals and recordkeeping procedures.
• Prepare for the exam by having a clear presentation about your firm, services, clients, and conflicts of interest.
• Subject matter experts within the firm should be present during the exam.
• Maintain open communication with the exam team, and ask for clarification when needed.
• Be timely and responsive; provide well-organized and numbered responses.

Common Exam Findings

• lack of proper written cybersecurity policies and procedures;
• inadequate vendor due diligence;
• inconsistent application of data classification policies across branches;
• poor password protection protocols;
• outdated, inaccurate, or irrelevant compliance manuals;
• insufficient testing of risk areas during annual reviews;
• inaccurate or untimely updates to Form ADV;
• unclear and misleading disclosures in Form CRS and Part 2A of Form ADV;
• issues with marketing materials, including testimonials, hypothetical performance, and social media content;
• failure to recognize custody situations for private funds;
• misallocation of expenses and improper management fee calculations for private funds;
• inconsistent expense allocations with disclosures for private funds; and
• issues with client account monitoring and investment recommendations.

How AdvisorLaw Can Help RIAs Stay Compliant

AdvisorLaw offers a comprehensive suite of services to help RIAs navigate the complexities of compliance. Whether you need ongoing support, enhanced reviews, or a fully outsourced chief compliance officer, we can tailor a solution to your specific needs.

• Ongoing Compliance Services: Our ongoing compliance service provides essential support and guidance to prepare your firm for SEC scrutiny.
• Enhanced Ongoing Compliance: This service offers a deeper level of support with email and trade reviews, along with extensive reporting tools.
• Outsourced Chief Compliance Officer (OCCO): Let our senior compliance analysts act as your dedicated CCO, handling all your compliance needs.

By partnering with AdvisorLaw, you can gain the peace of mind that comes with knowing that your RIA is compliant and focused on what matters most: serving your clients.

Connect with our experts. Schedule a complimentary consultation today and let’s discuss how we can help.