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4 SEC Exam Priorities Advisors Need to Know: Brian Hamburger

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Now more than ever, good compliance is good business, said Brian Hamburger, founder and CEO of MarketCounsel, during an External IT conference in New York this week.

Hamburger specifically highlighted four examination priorities that the Securities and Exchange Commission “has shown by their actions, not by their words.”

“If you want to know what their words say, you can simply take a look at their examination priorities that they publish each year, typically in the first quarter,” Hamburger told the crowd. “Those are on their website.”

Hamburger breaks down four areas that he said the SEC is “actually focused on.”

IRA Rollovers

As Hamburger sees it, the SEC should have been ahead of the Department of Labor’s fiduciary rule.

“The SEC, for all intents and purposes, should be ahead of this issue,” Hamburger said. “They are the registrar” of broker-dealers, investment advisors and investment companies. “They’re also the government arm that deals with private funds…. That said, they have failed to act in terms of extending the fiduciary obligation to anyone else besides RIAs. The DOL is ahead on this issue.”

To compensate for this, Hamburger said the SEC is targeting IRA rollovers in their examinations.

“The SEC is coming in and they are effectively boot-strapping what they’d like to see, which is this extended fiduciary obligation, within their regulatory exams,” he said. “So there’s no rules, right? If you look through the SEC’s website, you’re not going to see any action with respect to the extension of the fiduciary obligation to brokers.”

Despite this, Hamburger said the SEC has taken a pretty aggressive position and is addressing this at “just about every single examination.”

“It’s one of the first questions they’re asking, and they’re asking the question of, ‘Can you show us how you are managing conflicts of interest in connection with your recommendation to rollover IRAs?’” he said.


The SEC wants to make sure firms are not impeding upon the rights whistleblowers would otherwise have, according to Hamburger.

“Where this oftentimes comes into play is lead counsel, who is not necessarily familiar with the rules and regulations within the financial services industry, will write a really sound agreement for the departing employee,” he said. “Within the severance agreement, they will include provisions that they are prohibited from receiving any type of whistleblower payment.”

The SEC has been asking specifically for these and they’ve got a real issue with these provisions, according to Hamburger.

Share Classes

The SEC launched an exam sweep this summer to assess whether advisors have conflicts of interest when making recommendations about share classes to their clients. This Share Class Initiative specifically targets mutual fund and 529 plan share classes with substantial loads or fees, including 12b-1 fees.

“It doesn’t matter if you’re duly registered or a fee-only advisor, [the SEC wants to know] you obtained the most efficient share class for your client,” Hamburger said. “And one further is whether or not, within that sector, especially for passively managed funds, you went out and found the most inexpensive and efficient passively managed fund for your client.”

Hamburger’s advice to advisors: “Whatever your research is, you’re going to maintain it. Because the best answer to that question is, ‘Here is our due diligence.’”

Sanctioned Advisors

“The SEC has effectively said, ‘if you’re an advisor, and you hire individuals that have previously been sanctioned, they’re going to specifically come in to target you and ask about your supervision with respect to these employees,’” Hamburger said.

According to the SEC, such individuals “may present an increased risk of future misconduct, and thus can present harm to clients.”

Hamburger and his team at MarketCounsel have a “bit of an issue” with this.

“While it sounds great—everyone loves the regulators that go after the bad guys—these are folks that have already paid their debt back to the industry,” Hamburger said. “They’ve already reached some kind of settlement or brought a case to fruition.”

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