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.

Disclosure

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.

Custody

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

Tags: Eccleston, Eccleston Law, Eccleston Law LLC, James Eccleston,

Return to Archive

TESTIMONIALS

Previous
Next

Thank You from the bottom of our hearts for all you have done for us. When we realized this was a very bad investment - we did not know where to turn for help. Then we received your name. When we called you - you were so kind to us and then agreed to help us. For this we are so very grateful. The world would be a much nicer place if there were more people like the two of you in it. We will always remember all the help and kindness you have shown us. Thank you so very very much for everything.

Wayne and Judy S.

LATEST NEWS AND ARTICLES

June 9, 2023
Retrospective Review Deadline Approaching

The deadline for completing the initial retrospective review required by the Department of Labor (DOL) is quickly approaching.

June 8, 2023
Former David Lerner Branch Manager Receives FINRA Sanctions for Supervisory Lapses

The Financial Industry Regulatory Authority (FINRA) imposed a one-month suspension and a $5,000 fine on former David Lerner Associates branch manager Rande Aaronson.

June 7, 2023
SEC Files Fraud Charges Against Financial Advisor for Exploiting Elderly Clients

The Securities and Exchange Commission (SEC) has charged Douglas McKelvey, a former Morgan Stanley financial advisor, with fraud for misappropriating more than $1.7 million from two elderly customers who were his close relatives.