SEC Chair vows to increase Investment Adviser Examinations


Despite deregulatory fever reaching high pitch in Washington D.C., broad reliance by investment advisers and broker dealers on such efforts may be misplaced in 2018. On the contrary, many industry experts and followers expect the pace of rulemaking and oversight to pick up this year. By October, the Securities and Exchange Commission is expected to propose a rule setting the standard for personalized investment advice. SEC Chairman Jay Clayton has vowed to continue to increase the percentage of registered investment advisers who are examined annually, through data analytics and improved management of the SEC examination process.

His short-term goal appears to be an annual investment adviser examination rate of 20 percent, a 50 percent increase from just several years ago. The Commission continues to target retail investor fraud as an enforcement priority and has recently established a special unit whose agenda includes searching for hidden advisory fees. The message appears to be clear – harm to retail investors caused by hidden adviser fees will get the SEC’s attention. Additionally, the SEC and the Department of Labor have promised to work together on their fiduciary regulations, with each agency likely to release a proposal this year. Other SEC priorities include regulation of cryptocurrencies, cybersecurity and elder financial abuse.

FINRA appears to be headed into a busy year as well. It has announced efforts to address cryptocurrencies and focus on business continuity plans of its member firms. The agency has also promulgated a new rule that requires brokers to make a good faith attempt to establish a trusted contact for the account of an elderly person and also allows brokers to stop disbursements from accounts if the broker suspects that her aging client is being preyed upon or abused. Additionally, a renewed focus will be placed on high-risk broker dealers, high fee share classes and the process of moving clients between brokerage and fee-based accounts.

With regulatory rollback being a heavy lift and ongoing activity at staff level a certainty, financial firms are urged to continue to dedicate staff and resources to the maintenance and enhancement of their compliance programs in view of newly-announced priorities and internal risk assessment outcomes.