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SEC Risk Alert Announces Retail Retirement Examinations
June 22, 2015
In a "National Exam Program /Risk Alert: Retirement-Targeted Industry Reviews and Examinations Initiative," (Office of Compliance Inspections and Examinations (OCIE), 1 Volume IV, Issue 6, June 22, 2015), the Securities and Exchange Commission's ("SEC's") Office of Compliance Inspections and Examinations ("OCIE") announced that it is launching a multi-year Retirement-Targeted Industry Review and Examination Initiative, ("ReTIRE"), which will examine SEC-registered investment advisers and broker-dealers with particular emphasis on retirement savings by retail investors. The SEC will place an emphasis on four key areas:
- Reasonable Basis for Recommendations. The staff will assess the actions of registrants and their representatives for the reasonableness of their recommendations when:
(i) selecting the type of account;
(ii) performing due diligence on investment options;
(iii) making initial investment recommendations; and
(iv) providing on-going account management. - Conflicts of Interest. Business structure, compensation structure, personal issues or relationships, or relationships with service providers present potential conflicts of interest. Generally, the staff expects that registrants:
(i) identify material conflicts of interest,
(ii) design compliance programs to address the risks caused by those conflicts, and/or
(iii) disclose material conflicts of interest.
In order to evaluate whether compliance programs are appropriately identifying conflict-related risks and incentives upon which representatives make recommendations, sales and account selection practices will be reviewed in light of the:
(i) fees charged,
(ii) services provided to investors, and
(iii) expenses of such services. - Supervision and Compliance Controls. The staff will review registrants' controls, oversight, and supervisory policies and procedures, and may further focus on:
(i) registrants with operations in multiple and/or distant branch offices and
(ii) representatives with outside business activities. - Marketing and Disclosure. The staff will review registrants' brochures, sales and marketing materials, and disclosures to retail investors to confirm that the:
(i) content of the materials and representations of representatives are true and accurate and do not omit material information where there is a duty to disclose;
(ii) disclosures regarding the fees are complete and accurate; and
(iii) credentials or other endorsements are valid and meet any stipulated standards.