The SEC issued a risk alert yesterday relating to a series of examinations OCIE (Office of Compliance Inspections and Examinations) conducted that focused on investment advisors that operated from numerous branch offices and that had operations geographically dispersed from the advisor’s principal office.
General Findings from Examinations of Advisors with Branch Offices
OCIE’s initiative focused on assessing the compliance and supervisory practices relating to the personnel of investment advisors working within the advisors’ branch offices. The Staff found that more than one-half of advisors had compliance policies and procedures that were:
- Inaccurate because they included outdated information, including references to entities no longer in existence and personnel that had changed roles and responsibilities;
- Not applied consistently throughout all branch offices;
- Inadequately implemented because, for example, the compliance department did not receive records called for in the policies and procedures; or
- Not enforced.
Specific Branch Office Deficiencies
- Advisors did not have policies and procedures that limited the ability of supervised persons to process withdrawals and deposits in client accounts, change client addresses of record, or do both.
- Advisors lacked policies and procedures that would identify and remediate instances where undisclosed fees were charged to clients. In addition, policies and procedures governing such fees, including those related to wrap fee programs, were not enforced.
- Supervision deficiencies, including the failure to disclose material information, such as disciplinary events.
- Deficiencies relating to advertising materials prepared by supervised persons located in branch offices and/or supervised persons operating under a name different than the primary name of the adviser (“DBAs”).
- Code of Ethics deficiencies, including compliance with reporting requirements and the review of transactions and holdings reports.
Next Steps
OCIE also observed other deficiencies not listed above. Overall, in sharing this information, OCIE hopes to encourage advisors, when designing and implementing their compliance program and policies and procedures, to consider and address the unique risks and challenges that can result from a business model that includes a large number of branch offices and/or business operations that are geographically dispersed.
Click here to see the complete Risk Alert from OCIE.
For more information about how your firm can improve its policies and procedures relating to the supervision of personnel geographically dispersed in branch offices, please contact NCA Compliance.
Hayley Nelson is the President and Principal Consultant of NCA Compliance, Inc., a compliance consulting firm providing a wide range of customized compliance solutions for investment advisors. Ms. Nelson previously worked for the Securities and Exchange Commission and a large investment manager in New York.
