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November 25, 2013 at 07:00 PM
I have never been political in this column, but the time has arrived. The current administration distrusts the financial services community. That’s not to say such a position is not without some justification considering the actions that contributed to the market meltdown of 2008. That being said, the investment advisory community was not a contributor to such events—the buy-side seldom is. The advisory community did not make questionable loans or package explosive investment products. Nevertheless, the advisory community (including small firms that comprise the overwhelming majority of registered investment advisors) has now been lumped in with the rest of the alleged perpetrators and is now the focus of aggressive SEC scrutiny and increased enforcement actions, many of which involve issues that previously would not (and arguably still should not) be the subject of enforcement except for one overriding purpose: to set the bar high and make an example.
In an October speech, SEC Chair Mary Jo White, a former top federal prosecutor, indicated that SEC enforcement will be “felt and feared.” The commission will have a wide presence, focusing on both big and small violations, and employing a “Giuliani-style” approach. The mission: to maintain a strong presence beyond its ordinary reach for the purpose of “cracking down on both major and minor violations to deter wrongdoers.”
A noble mission and, in some respects, given past events and conduct, warranted. I submit that with respect to the advisory community, such an aggressive posture is overreaching, but given the current environment, advisory firms must be at the top of their game when it comes to compliance. They can’t just talk a good game, but must be able to definitively demonstrate it to the commission when it comes knocking.
And when, pray tell, might that happen? Subsequent to White’s October speech in Washington, Andrew Bowden, director of the SEC’s Office of Compliance Inspections and Examinations, announced that the SEC will focus on advisory firms that have never been examined. Bowden indicated that in 2014, the commission plans to give top priority to those approximately 4,000 RIAs who have never been visited by an examiner.
