November 8, 2018

Insufficient Resources for Compliance Program

On November 6, 2018, the Securities Exchange Commission ("SEC") announced a settlement with a former Chief Executive Officer ("CEO") of a now-defunct Registered Investment Advisor. The settlement included the CEO’s censure from the industry and a monetary fine of $45,000.

The bulk of the SEC’s findings centered around the fact that the CEO did not take appropriate action to rectify inadequate resources to effectively implement their compliance program.

On multiple occasions, the named Chief Compliance Officer ("CCO") brought deficiencies and recommendations to increase the firm’s internal or external resources to effectly address compliance functions in the firm’s compliance program to the CEO and management’s attention. These recommendations were largely ignored, which led to many of the Adviser’s Act violations found by the SEC.

Key reminders & tasks related to Compliance Resourcing and Authority:

  • Management must set the tone for compliance.
  • Management must provide adequate resources to properly affect the firms’ compliance program.
  • The CCO must be in a position of authority to effect change and policy within the firm.
  • For those multi-hatted CCO’s, exploration in adds to staff or the delegation to internal (or external) resources to assist with the compliance program is advisable.

To read the entire enforcement case, see the SEC Administrative Proceedings.

October 17, 2018


Beginning on October 1, 2018, the Financial Industry Regulatory Authority (“FINRA”) restructured certain representative-level qualification exams by creating the Securities Industry Essentials (SIE or Essentials) exam and revising appropriate representative-level qualification exams. This change is meant to reduce the duplication across various exams regarding general industry knowledge and was created to allow persons not associated with a firm to show that they have general industry knowledge as they seek jobs in the industry.

Persons seeking their Series 65 license to act as investment advisors (IARs) do not need to take the SIE Exam.

Key facts about the SIE exam include:

  • The SIE Exam is open to anyone 18 years old or older and the individual does not have to be associated with a firm;
  • The exam is good for four years and, beginning October 1, 2018, is to be used in conjunction with other representative exams;
  • If you already hold representative-level exams (i.e., Series 6, 7, 22, 57, etc.) you will be granted credit for the SIE Exam;
  • The SIE Exam can be passed once and used in conjunction with taking other affected exams; and
  • The table below outlines the affected exam categories:
Registration Category Requirements as of October 1, 2018
Investment Company Representative SIE & Series 6
General Securities Representative SIE & Series 7
DPP Representative SIE & Series 22
Securities Trader SIE & Series 57
Investment Banking Representative SIE & Series 79
Private Securities Offerings Representative SIE & Series 82
Research Analyst SIE & Series 7 + 86 + 87
Operations Professional SIE & Series 99

To review FINRA's published Q&A on the SIE exam, please see: Click Here

October 12, 2018

Mock Exams: Dress Rehearsals for the Real Thing

In the September/October 2018 edition of the Investment & Wealth Monitor Magazine, AdvisorAssist’s Ann Keitner and Conor Anderson wrote an article targeting CCOs on mock exams; discussing their importance and steps on how to run one.

A mock exam is a valuable tool for a firm to assess their readiness for an actual regulatory exam. All advisors benefit from this exercise, including new advisors that have never been examined and mature advisors who have been through multiple regulatory exams.

The article covers the below areas:

  • Determining the goal of the exam
  • Deciding the type of exam to conduct
  • Planning for the exam
  • Deciding who will conduct the exam
  • What to do with the exam results

To read the full article, please see: Click Here


Ann Keitner
Conor Anderson

May 4, 2018

SEC Action Lookup Website

The U.S. Securities and Exchange Commission ("SEC") has launched a new website [] to assist investors as well as recruiting advisors with a search tool to search for those individuals for which the SEC has taken action.

The website search includes individuals against whom a judgment or order has been issued by the SEC, including individuals who settled, defaulted, or contested their actions, provided a judgment or order was issued against them.

The results will not include individuals whose cases are currently pending at the trial court or those against whom no judgment or order has been issued. Results will also not include individuals named in district court actions as “relief defendants.” See for a full description.

Advisor Takeaways:

The SEC continues to try and close information gaps for investors. Compliance personnel should reference this site before hiring any supervised person. In addition, while reviewing these regulatory actions may provide some entertainment value, there are lessons to be learned. Not every action is rooted in intent. Mistakes happen and mistakes can be costly. Compliance Officers should add this resource to their toolkit.

AdvisorAssist is here to assist with any compliance or regulatory questions you may have.

March 21, 2018

5th Circuit Court Vacates DOL Rule

On March 15, 2018, the Fifth Circuit Court of Appeals ruled via split decision to “vacate” the well-publicized DOL fiduciary rule. This decision does not come as much surprise. It has long been rumored that the DOL rule was destined for failure after President Trump ordered a formal review in March 2017. Speculation by industry watchers is that the next step for the DOL rule could be the U.S. Supreme Court.

While this decision is limited in scope, it creates an opportunity for the Securities and Exchange Commission (“SEC”) to take the lead on a uniform fiduciary standard for both RIAs and broker-dealers. The SEC is the more natural choice for marrying the fiduciary standard across both RIAs and broker-dealers.

We expect the SEC to prioritize a new fiduciary rule proposal. Although the timing is uncertain, we expect to learn more prior to 2019.

What does this mean for you?

With or without the DOL, you still have a fiduciary responsibility to act in the best interest of your clients. You may not have to go to the extent of best interest contracts. However, “Know Your Clients” requirements are never going away and the regulators will always want documentation of how you operate as a fiduciary. It may still make sense to adopt some of the documentation standards of the DOL’s “Level Fee Fiduciary” when making rollover recommendations.


Brian Young
Brendan Furey

February 8, 2018

SEC 2018 Examination Priorities

Each year, the Office of Compliance Inspections and Examinations (“OCIE”) of the U.S. Securities and Exchange Commission (“SEC”) communicates its examination priorities for the upcoming year. The SEC has narrowed their focus on the following common themes:(1) Retail Investors (2) Compliance and risks in critical market infrastructure (3) Cybersecurity. Based on these themes, the SEC has pinpointed several key areas of concern that will be focus areas for 2018. Some of which are similar to years past, however, continue to be a priority for the SEC. We have provided an overview below of the key topics that RIAs need to be mindful of in 2018.

Disclosure of the Costs of Investing

The SEC will focus on the calculation of fees and expenses paid to the Advisor as well as any compensation that is paid to affiliates of the Advisor.

Focus areas include:

  • Consistency of the advisory fee calculations and the advisory fee methodology disclosures.
  • If charging an asset-based fee, the consistency of the valuation of client securities and the valuation methodology disclosures.
  • Advisors that receive financial incentives to recommend mutual fund share classes (ie. high sales loads or distribution fees).
  • Client accounts that are not re-assigned to a new IAR when an employee leaves the firm.
  • Advisors that transition from commission based accounts to fee based accounts.

Electronic Investment Advice

As in prior years, the SEC will continue to focus on advisors that offer investment advice through automated programs (ie. robo-advisors).

Focus areas include:

  • Oversight of the algorithms used to generate general investment advice.
  • Marketing materials.
  • Policies and procedures related to client data protection.

Wrap Fee Programs

For advisors that charge a wrap fee (ie. fee that includes both advisory fees and execution costs), they will need to demonstrate that the wrap fee is in the best interest of the client.

Focus areas include:

  • Any conflicts of interest are disclosed.
  • Review for best execution.
  • Disclosure of execution costs with broker-dealers.

Never Before Examined Investment Advisors

Due to the large volume of newly registered advisors and the limited resources of the SEC, the SEC will continue to prioritize advisors that have “elevated risk profiles”. This likely includes advisors that fall under the scenarios outlined by the 2018 exam priorities.

Senior Investors and Retirement Accounts and Products

Advisors that provide investment advisory services to seniors and/or retirement accounts will continue to be a focus for the SEC. Advisors will need to have internal controls in place to identify and mitigate financial exploitation of seniors.

Focus areas include:

  • Investment product recommendations.
  • Sales of variable insurance products.
  • Usage of target date funds.
  • Advisors that serve state and local government employees and non-profit employees (ie. 403(b) and 457 plans).

Mutual Funds and ETFs

As the primary investment products for retail clients, the SEC will focus on the types of mutual funds and ETFs recommended to clients.

Focus areas include:

  • Funds that experienced poor performance or liquidity.
  • Funds that are managed by advisors with little experience managing a fund.
  • Funds that hold securities that are difficult to value due to market stress (ie. securitized loans or mortgage backed securities).
  • Ensure that risk disclosures are provided to investors.

Cryptocurrency, Initial Coin Offerings (ICOs), Secondary Market Trading, and Blockchain

Cryptocurrency has wildly risen in popularity over the past year. The SEC will monitor this space as advisors engaged in this market continues to grow.

Focus areas include:

  • If advisors maintain controls and safeguards to protect assets from theft.
  • If advisors are providing adequate disclosures associated with the risks of these type of investments including: investment losses, trading liquidity, price volatility, and potential fraud.


Cybersecurity continues to be a priority for the SEC as we have witnessed large scale cyber attacks over the past year.

Focus areas include:

  • Governance and risk assessment.
  • Access rights and controls.
  • Data loss prevention.
  • Vendor management.
  • Training.
  • Incident response.

Please remember that OCIE and the SEC communicate these as PRIORITIES, and not an all-inclusive list of all focus areas. To read the full report, click here: "2018 National Exam Program Examination Priorities"


Brian Young
Conor Anderson