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July 24, 2019 at 11:28 AM
A Securities and Exchange Commission examination sweep has found significant weaknesses in how registered investment advisors hired, supervised and disclosed information about employees with disciplinary histories.
In a Wednesday Risk Alert, the agency’s Office of Compliance Inspections and Examinations revealed the results of 50 exams it conducted of RIAs that previously employed, or currently employ, any individual with a history of disciplinary events.
The RIAs collectively managed approximately $50 billion in assets for nearly 220,000 clients, the vast majority of whom were retail investors.
Advisors were identified for examination through a review of information about disciplinary events and other legal actions involving supervised persons of the advisor, including legal actions that are not required to be reported on Form ADV.
OCIE staff observed that nearly half of the disclosure-related deficiencies of the advisors examined were due to the firms providing inadequate information regarding disciplinary events.
For instance, advisors omitted material disclosures regarding disciplinary histories of certain supervised persons or the advisor itself.
“Often the disciplinary omissions related to supervised persons occurred because the advisors solely relied on these supervised persons to self-report to the firms information about their required disclosures,” the alert states.
OCIE also found that advisors included incomplete, confusing or misleading information regarding disciplinary events.
The RIAs at times failed to include the total number of events, the date for each event, the allegations, or whether the supervised persons were found to be at fault (i.e., whether fines, judgments or awards, or other disciplinary sanctions were imposed).
