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SEC Finds Numerous Deficiencies at Multi-Branch RIAs

By Alex Padalka November 10, 2020

The SEC's Office of Compliance Inspections and Examinations has found “a range of deficiencies” in its exams of RIAs operating from numerous branches geographically dispersed from the firms’ main offices.

Some of the firms examined hadn’t fully implemented policies and procedures on addressing advisory business occurring in their branch offices, according to a risk alert the SEC published Monday.

The “vast majority” of the examined RIAs had at least one deficiency in regard to compliance, the SEC says. More than half of the firms, for example, had inaccurate compliance policies or procedures, didn’t apply them consistently across all branches, implemented the policies and procedures inadequately or didn’t enforce them, according to the alert.

More specifically, the issues related to custody of client assets, fees and expenses, oversight of supervised persons, advertising and code of ethics, the regulator says.

Furthermore, more than half of the examined firms had deficiencies related to portfolio management, including oversight of investment recommendations in mutual fund share class selection and disclosure, wrap fee programs and rebalancing, as well as conflicts of interest disclosures and trading and allocation of investment opportunities, according to the alert.

The OCIE conducted exams of close to 40 main offices with one or more examination of each advisor’s branch offices, the SEC says. Collectively, the firms examined managed roughly $100 billion for around 185,000 clients, most of which were retail investors, and had 10 or more branch offices each, according to the alert.

“In response to the staff’s observations, advisers elected to amend disclosures, revise compliance policies and procedures, or change certain practices,” the OCIE says.

The office recommends several compliance practices to prevent deficiencies, including having uniform written compliance policies and procedures on monitoring and approving advertising, managing client fee billing, monitoring and approving personal trading activities of all supervised persons and portfolio management policies and procedures.

The office also suggests compliance testing and reviews of key activities at all branches at least annually, establishing compliance policies and procedures for checking prior disciplinary events in hiring staff, periodically confirming disclosures and requiring compliance training for all branch office staff.

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