SEC Alert Flags 'Multi-Branch' Risks

For example, advisors that do not monitor, review and/or test their branch office activities “may not be aware that the compliance controls they have adopted are not effectively implemented or do not appropriately address the intended risks and conflicts in these remote locations,” the alert states.

OCIE states that the vast majority of the examined advisors were cited for at least one deficiency related to the Compliance Rule.

In particular, the staff observed that more than half of these advisors had compliance policies and procedures that were:

• inaccurate because they included outdated information, such as references to entities no longer in existence and personnel that had changed roles and responsibilities;
• not applied consistently in all branch offices;
• inadequately implemented because, among other things, the compliance department did not receive records called for in the policies and procedures; or
• not enforced.

Other deficiencies involved advertising, both generally and specifically regarding the materials prepared by supervised persons located in branch offices and/or supervised persons operating under a name different than the primary name of the advisor (also known as “doing business as” or “DBAs”).

Examples of problematic ads included:

• performance presentations that omitted material disclosures;
• superlatives or unsupported claims;
• professional experience and/or credentials of supervised persons or the advisory firm that were falsely stated; and
• third-party rankings or awards that omitted material facts regarding these accolades.

— Check out FINRA Sets Sights on Registered Index-Linked Annuities on ThinkAdvisor.