SEC sets examination priorities

Dually registered advisers will be one of the SEC's exam priorities for 2013. Oh yes, the commission also plans to focus on payments advisers make to companies that distribute mutual funds.
MAY 02, 2013
Investment advisers to private-equity and hedge funds, and those who are dually registered as broker-dealers, will be targeted by Securities and Exchange Commission examiners this year. The SEC also will focus examinations on payments that advisers and funds make to companies that distribute the funds, and will explore the use of alternative and hedge funds in exchange-traded funds and variable annuities. The review priorities were posted on the SEC website yesterday. For broker-dealers, among the areas the SEC will target are fraudulent sales practices used with retail investors and compliance with the agency's new market access rule. Under the Dodd-Frank financial reform law, private-equity and hedge fund advisers must register with the SEC for the first time. About 2,000 private-fund advisers registered with the agency in 2012. The SEC will conduct “presence exams” for the new registrants in an effort to better monitor systemic risk the funds might pose to the financial system. The agency is putting an emphasis on reviewing investment advisers who are dually registered as brokers because of the convergence of the two practices. The agency is concerned that investors could be harmed as the lines between the two blur. “For example, it is not uncommon for a financial professional to conduct brokerage business through a registered broker-dealer that she does not own or control and to conduct investment advisory business through a registered investment adviser that she owns and controls, but that is not overseen by the broker-dealer,” the document states. ”This business model presents multiple conflicts.” The SEC also is keeping an eye on payments that advisers and fund companies make for fund distribution, a practice that is labeled in the report as “payments for distribution in guise.” “The staff will assess whether such payments are made in compliance with regulations, including Investment Company Act Rule 12(b)-1, or whether they are instead payments for distribution and preferential treatment,” the document states. The SEC is providing the guidance on examinations so that advisers are not caught by surprise. “We are publishing these priorities to promote compliance and communicate with investors and our registrants about areas that we perceive to have heightened risk,” Carlo di Florio, director of the SEC's Office of Compliance Examinations and Inspections, said in a statement. “This document, as well as our Risk Alerts and other public statements, are windows through which we can increase transparency, strengthen compliance and inform the public and financial services industry about key risks that we are monitoring and examining.” The SEC oversees about 11,000 investment advisers and 800 investment companies that together have about $50 trillion in assets under management. In conjunction with the Financial Industry Regulatory Authority Inc., the agency regulates about 4,600 broker-dealers with more than 630,000 registered representatives.

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.