Having an “ethical standard” is the most important part of an advisory firm’s compliance policy, Andrew Bowden, head of the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations, told compliance officers Tuesday.
“In order to be compliant, [advisory firms] can’t be effective by merely having policy and procedures, even if tested,” Bowden said during a question and answer session with Chuck Senatore, head of compliance and ethics at Fidelity Investments, during the National Society of Compliance Professionals’ annual conference at National Harbor, Maryland, just outside Washington.
Bowden said his “No. 1” piece of advice for firms is to “decide the [firm’s] ethical standard; there is no law surrounding” that. Firms should “decide why we are engaged in this endeavor,” and be able to articulate it. Bowden said he queries CEOs on this question when conducting exams.
Indeed, Bowden said during the Q&A that his speech was an attempt to articulate a “conceptual framework” on what “we’re observing in the marketplace” regarding firms’ and individuals’ missteps. “The overwhelming majority of people in the industry are trying to do the right thing” in “a competitive, complex environment,” Bowden said.
Besides stealing client money, some in the industry become “blinded” by conflicts of interest or they act recklessly, Bowden said. While the first infraction, which he said is the “smallest sliver” of infractions and involves “false promises or absconding with peoples’ money,” is often blatant in nature, acting recklessly or having conflicts of interest may not always be intentional.
With conflicts of interest, there can be “good people trying to do the right thing [that] can be blinded and convince themselves that they are in the right,” Bowden said.
“No one is immune to conflict,” Senatore replied. Bowden agreed, stating: “Absolutely. We have conflicts at the SEC as well.”
Acting “recklessly,” Bowden said, can involve a firm launching a new product or someone opening a new business “without proper controls.”
Bowden added during the Q&A session that OCIE examiners are also “looking closely” at how advisors are marketing to and incentivizing boomers “to talk [them] out of their 401(k)” and into other products.
“We will make sure [firms]… are truly giving advice that’s in the client’s best interest,” he said, adding that OCIE is also focused on elder abuse and sales of structured and complex products.
The SEC announced Monday that Marc Wyatt is joining Bowden in OCIE as its deputy director.
Wyatt joined the SEC in December 2012 as a senior specialized examiner focused on examinations of advisors to hedge funds and private equity funds. He is also the national co-coordinator of OCIE’s Private Fund Specialized Working Group and recently participated in the creation of its Private Fund Examination Unit, whose attorneys, accountants and examiners specialize in examinations of advisors to private funds.
— Check out Clients Want Ethical Advisors. Are You One? on ThinkAdvisor.