SEC maintains hard line on conflicts

Jan 12, 2014 @ 12:01 am

By Frederick P. Gabriel Jr.

The SEC last Thursday released its examination priorities for 2014. The list no doubt is intended to provide financial market participants with a comprehensive — but by no means exhaustive — guide to those parts of the market that the regulator deems most susceptible to mayhem and mischief.

InvestmentNews reporters Mason Braswell and Mark Schoeff spent considerable time late Thursday and Friday poring through the 11-page document, and talking to experts on adviser compliance, in order to provide InvestmentNews readers with analysis and context around those priorities that are most relevant to them.

What they found is that the Securities and Exchange Commission this year will continue to keep a close eye on conflicts of interest within the adviser realm. Unless you've been living under a rock since the end of the 2008-09 financial crisis, you've likely heard that this has been an area of major concern for the regulator.

“Dealing with conflicts of interest is something the SEC apparently sees as being at the core of its mission when it comes to reviewing investment advisers,” said Mr. Schoeff, who has been covering the regulator for InvestmentNews since 2010.

Indeed, in echoing a theme in last year's list of exam priorities, the SEC said it will pay close attention to firms that are both registered investment advisers and brokerages. The SEC is worried that reps of so-called hybrid firms might be tempted to steer clients into accounts intended to increase revenue to the firm rather than provide the most benefit to the client.

Along the same lines, the SEC this year made clear for the first time that it will scrutinize retirement account rollovers. Again, its concern is that investment advisers or brokers may have financial incentives to mislead investors about the benefits of rolling over assets from a 401(k) plan to an individual retirement account offered by their firm.

As I said, the SEC's campaign against conflicts of interest in the advice business — both real and perceived — is nothing new. InvestmentNews has been reporting on the regulator's efforts to make sure advisers' motivations are pure — or at least more transparent — for years.

Judging by the SEC's 2014 examination priorities, as well as the list of exam priorities released two weeks ago by Financial Industry Regulatory Authority Inc. (which also included conflicts of interest among advisers and the firms they work for), it's an issue that is not going away anytime soon — nor should it.

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