Regulatory Compliance E-newsletter – July / August 2018

Feature of the Month

OCIE issues Risk Alert on Best Execution

On July 11, 2018, the Office of Compliance Inspections and Examinations (“OCIE”) issued a National Exam Program Risk Alert (“Risk Alert”) for compliance issues related to the obligation to seek best execution imposed upon investment advisers (“advisers”) granted the responsibility for selecting broker dealers to execute client trades. In the Risk Alert, OCIE reemphasized the long-established fiduciary responsibility of advisers to seek the best qualitative execution when selecting broker-dealers to execute client trades, taking into consideration the circumstances of the particular transaction.

Importantly, the Risk Alert also cited the most common deficiencies issued by the staff in recent examinations related to this fundamental fiduciary obligation. The staff noted that some examined advisers could not demonstrate that they periodically and systematically evaluate the execution performance of broker-dealers used or failed to consider materially relevant qualitative factors during such reviews, including the broker’s execution capability, financial responsibility and responsiveness. Moreover, staff observed that advisers selected some broker-dealers without comparing them to competing broker-dealers initially and/or on an ongoing basis. OCIE also highlighted deficiencies in advisers’ disclosures of and policies and procedures relating to their best execution practices, soft dollar arrangements, mixed use allocations and internal controls. Even advisers who produced written policies and procedures were cited for failing to follow them, including seeking comparisons from competing broker-dealers, inconsistent allocation of soft dollar expenses and ongoing monitoring of execution, price, research and responsiveness of their selected broker-dealers.

In response to the concerns expressed by OCIE and the renewed focus on adviser practices related to seeking best execution, NRS urges advisers to carefully review and reevaluate their existing policies, procedures and disclosures in light of each firm’s current business model, including the types of broker-dealers utilized and securities traded. Advisers should conduct regular, systematic and well-documented reviews of quantitative and qualitative execution factors, along with soft dollar allocation methodology, soliciting input from various stakeholders such as traders, portfolio managers and operations staff.

NRS has introduced an offering specifically designed to target and assess the regulatory concerns and common deficiencies set forth in the Risk Alert and to aid firms in evaluating its best execution and soft dollar practices. The service is currently being deployed to assist advisers in gauging their brokerage and soft dollar practices, disclosures, and policies and procedures against the common pitfalls outlined in the Risk Alert and providing quantitative trading analytics utilizing NRS’ powerful new Trade Blotter Review Tool.

For more information, contact us.

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Additional Compliance Issues Related to Best Execution

As outlined, the Office of Compliance Inspections and Examinations (“OCIE”) recently issued a risk alert to provide investment advisers and other market participants with information relating to the most common best execution deficiencies that have been cited in recent examinations.

The most frequent best execution issues cited by OCIE in adviser exams include the following:

  • Not performing best execution reviews or were unable to demonstrate that the review was performed;
  • Not considering relevant factors relating to the broker-dealer such as the financial responsibility or responsiveness to the adviser and not soliciting input from their traders during the best execution review;
  • Not seeking comparisons from other brokers particularly where a firm utilizes a single broker-dealer;
  • Disclosure issues such as not implementing procedures communicated in the client disclosure;
  • Soft dollar issues, particularly lack of full disclosures on the FORM ADV, no disclosure to clients who may bear more of the cost of certain soft dollar arrangements and lack of adequate disclosure on the use of soft dollar arrangements; and
  • Weak, nonexistent or lack of implementation of policies and procedures, particularly in the area of reviewing broker-dealers, allocating soft dollar expenses and ongoing monitoring.

As a fiduciary, an adviser has the responsibility to select broker-dealers and to execute client trades, with the added obligation to obtain “best execution” of the client transactions. Best execution requires advisers to execute trades in such a manner that the client’s total costs or proceeds in each transaction are the most favorable under the circumstances. In directing brokerage, advisers can and should consider the full range and quality of a broker-dealer’s services including, among other things, the value of research provided as well as execution capability, commission rate, financial responsibility, and responsiveness to the adviser. There are many factors to consider and the lowest possible commission cost is not always the determining factor, the adviser should consider all factors including brokerage and research services.


NRS ComplianceGuardian provides policies and procedures as well as a Best Execution Review template to assist firms in meeting SEC exam requirements. For more information click here.

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So You Want To Work in the Securities Industry?
The odds have been tipped in your favor.

Have you dreamed of a lucrative career on Wall Street, but thought that the barriers to entry were too high? As of October 1, 2018, that bar will be lowered a bit. You may have heard that the qualifications process for entering the securities industry is getting a major makeover. The current Series Exams (i.e., Series 6, Series 7) are being replaced by a two-step process: The Securities Industry Essentials (SIE) exam and a Specialized Knowledge Exam (SKE), or “top-off” exam, specific to the area of the industry the candidate is looking to enter.

It is speculated that this will have a big impact on industry hiring practices — for the first time ever, a candidate will not need to be sponsored by a FINRA member firm to begin the registration process. Anyone can schedule and sit for the SIE exam. Passing the SIE alone will not qualify one to register with FINRA — candidates will still need to be sponsored by a member firm to sit and take the appropriate top-off exam (other requirements, such as fingerprinting and background checks, still remain). The game changer is that job candidates with no prior industry experience, whether recent college grads or those looking to switch careers, can now take the first step towards registration on their own. This will allow a candidate to demonstrate their desire and sincerity to their potential employers — a chance to stand out from the crowd. Employers are likely to hire from this “prequalified” pool of job seekers.

FINRA seems to endorse this new hiring model. Not only can anyone 18 years of age or older sit for the SIE, but a passing score will be valid for four years, giving candidates plenty of time to land that dream job. The fee to take the SIE exam is expected to be only $60 (far less than the $100 fee to take the Series 6 and $305 for the Series 7).

So you want to take the Securities Industry Essentials examination?

Many details regarding the sign-up process are still forthcoming from FINRA, and an exam enrollment site on is expected to be launched this spring. Any person wishing to take the SIE will establish an account, pay for the SIE, and then proceed to the testing center website ( to schedule their test. Sign-up through FINRA will not be available until October 1.

Keep an eye on this space for updates on the SIE exam and industry-leading FIRE study materials that include:

  • Online self-study modules
  • Recorded web tutorial sessions
  • Online quizzes and final exams
  • Custom assessments based on missed questions
  • FIRE’s Green Light plan ensuring you stay on track (90%+ pass rate)
  • Free on-demand printing of online materials
  • Unlimited toll-free telephone and email access to our expert trainers

Find out more here.

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NRS Symposium Preview – Boston

In our last e-news, we previewed Symposia sessions in both Chicago and Boston. Today, with a successful Chicago Symposium in the books, we are preparing for the third and final Symposium of the year, which as mentioned, will be held in Boston, August 14-16 at the Omni Parker House in Boston, MA.

As we outlined previously, each year, NRS holds Compliance Symposia on the West Coast, Midwest, and East Coast. The NRS symposia offers three days of interactive compliance education for attendees; focusing on providing a solid foundation in the Investment Advisers Act of 1940, along with information on the latest rules and regulations.

Below are previews of key sessions:

Books and Records Requirements for Investment Advisers
August 14 – 10:45AM to 12:45PM EDT in Boston

This session will not only cover the nuts and bolts of the SEC books and records rule, including recent and imminent amendments, but will incorporate an overview of the SEC’s expectations regarding non-required records that are included in the SEC examination document request list. Paper and electronic storage of records, including email technology and solutions, will be discussed as will record management practices that help advisers avoid common examination deficiencies.

After attending this course, attendees should be able to:

  • Implement a holistic and practical approach to books and records management as part of your compliance program
  • Distinguish between the Advisers Act Books and Records Rule requirements and non-required records included in the SEC examination document request lists
  • Update the firm’s books and records policies and procedures to meet new SEC requirements and examination expectations
  • Manage an organized and efficient records management system to create a resoundingly positive impression at the start of and throughout an SEC examination
  • Review books and records tips to avoid common deficiencies

Find out more here.

Compliance Programs Rules and Strategies for Managing Your Annual Review
August 15 – 2:00PM to 4:00PM EDT in Boston

This session will identify essential internal controls and compliance testing and documentation procedures within the structure of a “real-world” practical compliance program. The seminar will also deal with how to conduct periodic or annual compliance reviews that identify and address compliance gaps or risks, including the level of detail appropriate for an annual review report.

After attending this course, attendees should be able to:

  • Demonstrate a clear understanding of the structure, content and terms of the Advisers Act for quick, easy reference and response
  • Use the framework of the Advisers Act to prioritize work flow and assign tasks for establishing effective policy, procedures and internal controls, and for minimizing risk and fines
  • Pinpoint the SEC areas of concern that should drive required written compliance policies and procedures
  • Analyze the relationship among internal controls, internal reviews and the risk-based SEC examination program to better determine your firm’s compliance risk and to take actions to minimize your firm’s exposure to more frequent examinations, enforcement investigation, and fines
  • Examine the use of checklists, timetables, SEC Document Requests Lists, exception reports and staff interviews to implement a strong compliance program
  • Use transactional, periodic and forensic testing of policies and procedures as tools of the risk assessment process
  • Identify systemic problems to initiate and implement prompt corrective action
  • Adopt changes in the SEC examination process to help ensure a successful examination outcome
  • Monitor regulatory changes as they occur

Find out more here.

Professional Ethics: Ethical Decision-Making for Compliance Professionals
August 16, 2018 – 8:30AM to 10:30AM EDT in Boston

Your firm has a code of ethics based on existing regulatory requirements. Now what? Moving beyond the code, how do you address ethical dilemmas in your firm? This practical and interactive ethics workshop uses scenario-based training and group discussion to engage attendees in analyzing and responding to ethical issues confronted by compliance professionals and various members of the firm.

After attending this session, you should be able to:

  • Recognize the nature and source of ethical dilemmas and conflicts of interest
  • Address ethics as it applies to the roles within the organization
  • Use scenario-based training to learn the language of ethics and how to communicate it within the organization
  • Develop techniques for identifying ethical situations and methods for mitigating ethical risk
  • Examine conflicting goals, rethink frozen positions, and appreciate opposing arguments

Find out more here.

Learn more about the Boston Investment Adviser Compliance Symposium by going here.

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