More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Robert Khuzami, director of the Securities and Exchange Commission’s Division of Enforcement, says his division’s Asset Management Unit is cracking down on investment advisors who lie about their credentials.
“We are reviewing registration documents for high-risk investment advisors to determine who is lying about their educational achievements, their business affiliations, and their assets under management,” Khuzami (left) told attendees at the Consumer Federation of America’s financial services conference on Dec. 1.
The enforcement unit’s crackdown–part of new initiatives being undertaken by his division–Khuzami said, is akin to “the crime-fighting approach championed by Rudy Giuliani in 1990s New York–if you stop people when they commit small infractions, they are less likely to graduate to bigger ones.”
While Giuliani was focused on "subway turnstile-jumpers and squeegee-men," the enforcement division is zeroing in on advisors "who lie about graduating Phi Beta Kappa, conceal their association in a past failed business venture, or inflate their assets under management who might well be the same persons who outright steal your money when the markets turn against them," he said.
The enforcement unit’s newly-created Asset Management Specialized Unit “is utilizing data and risk-based analytics to identify the early-warning signs of fraud, thus increasing our ability to cut off schemes in their infancy,” Khuzami said.
The enforcement division is also focusing on analyzing databases to identify mutual funds that exhibit poor performance, have relatively high fee arrangements, and sub-advisors, he said, “all of which may suggest excessive fee arrangements that can eat away at the returns you should be getting in your mutual fund investments.”