Outside voices and views for advisers

Brace yourself for more SEC exams

The agency is working toward a goal of examining every RIA at least once every five years

Oct 11, 2017 @ 12:38 pm

By Guy F. Talarico

The new Securities and Exchange Commission chairman, Jay Clayton, recently testified before Congress that the agency will increase its examinations of investment advisers by 20% in the current fiscal year, and nudge those numbers up a further 5% in fiscal 2018.

More than 50% of requested budget funding will be invested in the agency's enforcement and examination programs. This budget will support the SEC's effort to place a high priority on adding more examiners as part of the agency's multi-year plan to increase coverage of investment advisers.

This mirrors former SEC Chairwoman Mary Jo White's November 2016 testimony, in which she stated increasing adviser exams was a top priority in the SEC's FY 2018 preliminary budget request.

An increase in exam coverage is necessary as registered investment advisers now manage over $70 trillion in assets, more than three times 2001 levels. To keep pace, the SEC reassigned approximately 100 staff in 2016 to the investment adviser examination unit of its National Examination Program from the Financial Industry Regulatory Authority Inc.

To increase exam coverage, the agency will continue to enhance its internal operations efforts and leverage technology to increase efficiency. The SEC plans to continue conducting so-called risk-based presence exams, which enable the SEC staff to draw on data mining, analytics and pattern recognition to focus their time and resources on the areas that represent the biggest risks to investors.

Indeed, the regulator is assembling massive data inputs, including Form ADV and Form PF filings, into a risk matrix, with the goal of examining every RIA at least once every five years.

"It's an ambitious goal that increases the likelihood an advisery firm will get a knock on the door sooner or later," observed Robert Plaze, a partner with the law firm Proskauer Rose and former deputy director of the Division of Investment Management during his nearly 30-year tenure at the SEC. "Because the SEC has further focused some part of its resources on advisers that haven't been examined before, those that have never had the pleasure can soon expect to join the company of those who have," he said.

Depending upon risk weightings, exams may be more or less intensive. "The good news is that many of the examinations these days are focused on a limited number of issues," Mr. Plaze added, "and can be over in a relatively short amount of time. Some of our clients' on-site exams have been finished in a week."

Even with funding for the SEC's Office of Compliance Inspections and Examinations remaining relatively unchanged from FY 2017, many industry experts foresee little change in the aggressiveness of SEC enforcement — certainly not the deregulatory watershed some had predicted.

Many anticipate the continued trend from FY 2016, when the agency brought a record 548 stand-alone or independent enforcement actions and obtained judgments and orders totaling more than $4 billion in disgorgement and penalties. The SEC also reached new highs for Foreign Corrupt Practices Act-related enforcement actions and money distributed to whistleblowers ($57 million) in a single year.

The planned increase in exam frequency represents a seismic shift from years past, when advisers could expect a review about once every five to 10 years, and some registrants escaped review altogether. Examining 10% or less of the total number of RIAs prior to 2016 was generally viewed as insufficient to meet the goal of protecting investors and maintaining fair, orderly and efficient markets.

Guy F. Talarico is the founder and CEO of Alaric Compliance Services.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 26


Cracking the Code: Making Sense of Alternative Investments

InvestmentNews Research estimates that $150 billion in alternative assets could be added to client portfolios among independent advisers over the next three years. Roughly 85% of all clients are now expressing interest in learning more... Learn more

Accepted for 1 CE Credit by the CFP Board. Pending by Investments & Wealth Institute for 1 credit towards the CIMA® and CPWA® certifications.

Featured video


Why broker-dealers are on a roll

Deputy editor Bob Hordt and senior columnist Bruce Kelly discuss last year's bounce-back for IBDs.

Latest news & opinion

Top 10 IBDs ranked by revenue

These independent broker dealers generated the most revenues in 2017.

8 podcasts advisers listen to when they aren't working

Listening to podcasts for the fun of it.

UBS continues to cut loans to recruits, while increasing compensation to brokers

The wirehouse reduced recruitment loans 20% and increased bonus loans 68% in the first quarter.

Things are looking up: IBDs soared in 2017

With revenue up, interest rates rising and regulation easing, IBDs are soaring.

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print