Surviving an SEC exam: Know 2018 priorities


Monday, March 26, 2018 | By Matt Ahlstrand

Surviving an SEC exam: Know 2018 priorities

If your firm is an SEC-registered investment advisor, your chances of facing an exam just went up. The SEC conducted 12% more exams on advisors in 2017 than in the previous year, and the average time between exams for a typical firm narrowed from nine years to seven. The likelihood of getting a visit increases if your firm is newly registered, has never been examined, or ranks high on SEC risk-based criteria. These trends indicate that the SEC is making good on its efforts to step up enforcement, as further evidenced by a planned 20% increase in examination staff initiated in 2017.

These are a snapshot of key findings highlighted in our latest SEC Exam Survival Guide, published in conjunction with Focus 1 Associates, a compliance consulting firm led by former SEC examiners. In addition to authoritative tips and advice on how to prepare for an exam, the guide lays out the top priorities examiners will be focusing on in 2018, which the SEC announced in February. Among the five main priority categories, protecting retail investors, especially seniors and retirement savers, from unsuitable investments and undisclosed fees remains at the top. The SEC has expanded its focus to include digitally derived advice, whether rendered in a pure “robo” model or as part of a traditional advisor’s offering. The SEC is also sharpening its focus on cybersecurity and the controls firms have in place to protect client assets and confidentiality.

Some firms are willing to play the long odds and not worry about an exam until they have no choice. Most firms, however, want to do the right thing and avoid the potential business disruption an exam can cause. For those firms, our guide outlines the 12 steps you can take before, during and after an exam to minimize its impact on your business. It walks through the exam process, what you can expect, how to prepare staff, and how a firm should conduct itself when the examiners show up. Seasoned examiners can tell pretty quickly whether a firm has a good culture of compliance, and whether management is setting the right “tone at the top.”

A couple of key points to remember: One, simply being “in compliance” is not the same as being prepared for an exam. Firms with absolute confidence that they are playing by the rules can still benefit from first-hand knowledge of the actual exam process. And two, even the best-intentioned firms are likely to have deficiencies that need correcting, so it is best to be able to anticipate those in advance.

The worst time to prepare for an exam is after you are notified that you have been selected. Download this SEC Exam Survival Guide and register for the 2018 SEC Exam Priorities webinar, to increase your knowledge of how to prepare.



Asset Management, Regulation, Wealth Management


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