More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Advertising Advisor Services and Credentials Section 206 of the Investment Advisers Act contains the anti-fraud provision of the statute and ensures that RIAs advertising and marketing practices are consistent with the fiduciary duty owed to clients and prospective clients.
When asked what challenges come with being the sole director of the Securities and Exchange Commission’s most high-profile division, Andrew Ceresney cited keeping pace with the “increased complexity of the misconduct” the enforcement division sees as it relates to products, the markets and “schemes.”
“Over time as matters have become more complex, we’ve been bringing on more industry experts, and we’ve gotten smarter about using technology,” Ceresney told IA in April. The division is dealing with “very complicated schemes where people are engaging in conduct that’s hard to unravel but we do it through hard work, smarts and the use of technology.”
In the SEC’s last fiscal year, the enforcement division, which includes roughly 1,300 employees nationwide, brought almost 700 cases and obtained orders for penalties and disgorgements of ill-gotten gains totaling $3.4 billion.
Ceresney said the division is also “litigating more cases,” specifically bringing cases that “are built to litigate.” However, Ceresney noted that the funding boost for the SEC under President Obama’s 2015 budget would help the division handle more complex cases. Financial reporting cases, for instance, “take a lot of time to investigate and you often have significant amounts of data to review.”
The division’s five specialized units, which Ceresney said are “all functioning well,” include the Asset Management Unit, which focuses on advisor enforcement. “The vast majority of advisors mean to do the right thing and try to comply with the law,” he said.
Ceresney said the division has “hesitated” to create additional units because doing so “creates challenges in terms of managing the division because you’re creating a new set of supervisors.” Instead, the division has created task forces to focus on specific areas, like the financial reporting and audit task forces, as well as the micro-cap and broker-dealer task forces.
When asked if enforcement actions would be an effective means to address fiduciary breaches, Ceresney replied: “I don’t know that [bringing more enforcement cases] addresses the broader policy debate” about whether the SEC should issue a rule to put brokers under a fiduciary mandate.
(Check out Investment Advisor's full IA 25 for 2014 list on ThinkAdvisor.)