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.
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
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.”