6 of the SEC’s Most Common Examination Deficiencies

Posted on March 15th, 2016 at 9:25 AM
6 of the SEC’s Most Common Examination Deficiencies

From the Desk of Jim Eccleston at Eccleston Law LLC:

Of the extensive list of investment adviser violations, six account for about 60% of shortfalls found by Securities and Exchange Commission staff when examining adviser offices. This statistic was provided by Renee Esfandiary, assistant director of the SEC’s Office of Compliance, Inspections, and Examinations, at the IA Watch compliance conference in Washington. She also identified and detailed those 6 areas briefly:

Compliance Rule

Often compliance rule violations include a lack of written policies to ensure operations adhere to the long list of adviser regulations, not following the firm’s own policy, or not having a designated compliance officer responsible for their administration.


Breach of disclosure most commonly occurs when advisers do not file updated Form ADV, file the Form ADV with inaccurate information, or do not provide clients with particular information at the required time

Fiduciary Duty

Troublesome examination violations in fiduciary duty mostly result from not acting in a client’s best interest, such as using a client’s assets for the benefit of the adviser or other clients. This always constitutes fraud. It is also important to mention here disclosure of conflict of interest.

Code of Ethics

An advisory firm that wishes to avoid conflict of ethics should enforce a code of ethics that describes the standards of conduct including securities trading of its employees, officers, directors and other peoples that the firm is required to supervise.

Advertising Rule

Advertisements that have false or misleading statements, those that contain an untrue statement of fact, or those the lack required necessary documentation are strictly prohibited and enforced by SEC examiners. Certain areas such as compliance with Global Investment Performance Standards (GIPS) and construction and compliance of performance composites often come up during exams.


Those advisers that have custody of investor assets are subjected to annual surprise examinations of those assets. This examination is held by an independent public accountant so investors have certification that their assets are being used as they had expected. Frequent violations arise upon failure to complete the exams and when firms do not deliver financial statements on time.

While these areas seem very straightforward, they are the most common among examinations. Simple steps can be taken to mitigate violations and subsequent sanctions. Many resources to help firms remain compliant can be found at both www.sec.gov and www.finra.org

The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

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Jim, Stephany and the whole team were a God send.  We felt like we were put into a situation where we had no advocate. Jim’s team came in with a strong, well laid out strategy on how to get our story heard. Where our outside compliance company had no ability to help, our Broker Dealer was impenitent, and the regulators were aggressive pursuing vague rules, Jim came like a barricade against an assault we did not understand. Though you pay member dues to be affiliated with FINRA and a B/D, you have no voice. The only thing that is truly heard in this un-level playing field is a bulldog’s bark like Jim’s. I would encourage anyone to call Jim and his team to find a real ally in the tough and complicated world of securities regulation. They are truly the best.

Greg P.


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