Top 10 Focuses of SEC Scrutiny - Are You Prepared for an SEC Exam?

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preparedfor an

Are you

SEC exam?

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There

won’t be enough time

on the way.

to start preparing for an SEC exam


once one is

prepareThe time to

now.for


that exam is

Where should you start?

Top 10Here are the

focuses ofSEC scrutiny.

Copyright © 2013 Advent Software, Inc. All rights reserved.Focus Areas in SEC Examinations of Investment Advisors: The Top 10. Speech by Lori A. Richards, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission, March 20, 2008

Controls over

Because many firms base client fees on the value of holdings,the SEC wants to make sure holdings are not overvalued.

1 valuation.


2


Controls over

The SEC is highly sensitive to insider trading. Does your firm have a proprietary code of ethics, policies and procedures, and enforcement mechanisms to prevent the misuse of “material non-public information?

non-publicpersonal

information

trading.and

Dealing with

senior investors.3

What is your firm doing to protect senior clients from abuses of trust in marketing, appropriate product selection, and other aspects of the relationship?


Firms are required to implement internal compliance review and risk-assessment programs. How effectively you are doing that is a

key area of interest to examiners.

Compliance4


and supervision.

Are the firm’s recommendations and investment decisions consistent with its stated polices and with its clients’ objectives and restrictions? Examiners

look especially closely at the use of derivatives in portfolios.

management.

Portfolio5


Are the firm’s recommended brokerage arrangements consistent with its fiduciary responsibility to protect clients’ assets and interests?

best execution.

Brokerage arrangements


6and

What policies and controls does the firm have in place to ensure fair allocation of trades and avoid favoritism toward certain clients?

trades.Allocation of

7


What measures are firms following to ensure that its performance claims are accurate? The SEC says this continues to be an area of “high deficiencies.”

Performanceadvertising, marketing and fund distribution.

8


Does the firm have effective policies to prevent theft, loss or misuse of client assets?

Safety of client assets.9


Does the firm have effective procedures for capturing, maintaining, and reporting information in its books and records?

processingInformation10


protection.and

on-going


for the SEC should

preparedBeing

be an

process.

red flagsAre there any


to be aware of?

Any firm with $100 million or more in equities in discretionary accounts must file quarterly 13F forms with the SEC listing those holdings and

their values. Failure to do so may trigger an examination.

Failure


to make 13F filings.

Learn about more Red Flags to Avoid and The 12 Steps to Prepare for an Exam.

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Top 10 Focuses of SEC Scrutiny - Are You Prepared for an SEC Exam?

Business

sec exam copyright

failure copyright

ongoing copyright

focuses of sec scrutiny

clients assets

senior clients

firms recommendations

misuse of client assets