More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
Carlo DiFlorio, the new head of the Securities and Exchange Commission's (SEC) Office of Compliance Inspections and Examinations (OCIE), told attendees at the Insured Retirement Institute's (IRI) annual government, regulatory, and compliance conference in Washington on Thursday, April 29, that of the 800 exams that the SEC had performed in the last year, 80 had been focused on the variable products area, with some of those cases being referred to the SEC's enforcement division.
Indeed, Amy Lynch, president of FrontLine Compliance, and a former SEC examiner, who also spoke at the IRI conference, says that the SEC is actually performing more variable product exams than FINRA.
DiFlorio noted at the conference that the SEC is currently working with FINRA to update the two agencies' 2008 joint report on effective practices for variable annuities. An updated report, he said, will be forthcoming.
Lynch told attendees at the conference that the SEC's exam schedule is far different than the regimented one she followed, as OCIE's exam policy now is one of just "showing up." The SEC examiners, too, she said, are no longer "rookies." Rather, they are experienced and will ask "tough questions." Indeed, DiFlorio said that OCIE's key objective is to focus on having a "stronger, more risk-based exam program." OCIE now supports "joint exams," he said, and OCIE's new structure includes a dedicated team for credit ratings agencies. DiFlorio says that he and his team are also having more discussions with industry associations to get a handle on industry practices and trends.
One cautionary note that Lynch gave to attendees is that if someone shows up unannounced on your firm's doorstep claiming to be an SEC examiner, make sure to ask for their identification, as "there have been imposters."