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RIAs are Under the SEC’s Microscope

While a mere 10 percent of RIAs underwent an SEC examination in 20151, chances of an SEC visit may jump, owing to a funding increase targeted for RIA audits and potential plans to leverage third-party reviewers.

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RIAs are Under the SEC’s Microscope

RIAs are Under the SEC’s Microscope

The Securities and Exchange Commission (SEC) expects to ratchet up the number of Registered Investment Advisor (RIA) examinations in response to the extraordinary growth in the advisor population, which is projected to increase to 12,000 in 2016, and assets under management (AUM), which are estimated to reach $65 trillion in 2016.1

While a mere 10 percent of RIAs underwent an SEC examination in 20151, chances of an SEC visit may jump, owing to a funding increase targeted for RIA audits and potential plans to leverage third-party reviewers.

Doing it Right Now versus Later, More Expensively

RIAs are under the SEC’s microscope and required to have written compliance policies and review them annually. The degree to which these policies are comprehensive, how well they reflect current SEC requirements and how often they are reviewed varies considerably among RIAs—depending upon the level and expertise of the resources dedicated to meeting their myriad compliance responsibilities.

There are two basic groups of RIAs when it comes to compliance:

1. RIAs that do it right today and may prevent future trouble; and
2. RIAs that devote insufficient time and effort to compliance, and pay a much higher price later to address unsatisfactory SEC audit findings.

The RIAs who seek to do it right from the outset may either have a full-time compliance professional, hire an RIA compliance consultant or avail themselves of a compliance services platform offering.

RIAs that pay inadequate attention to compliance may not learn of any shortcomings in meeting their legal requirements until after a visit from the SEC. What these RIAs may have saved by their underinvestment in their compliance capabilities can quickly evaporate in the form of attorney fees, fines and diminished brand reputation.

Is it Time to Get Compliance Support?

Ben Franklin famously said that death and taxes were the only certainties in life; we can forgive him for being unfamiliar with the securities industry. If there is one certainty in our business, it is that the rules and regulations governing it will grow in number and complexity over time.

With an increasingly challenging regulatory environment and a growing focus on audits of RIAs, it may be time for RIAs to rethink how they meet their compliance responsibilities.

Hiring an internal resource is one way, but the cost may be prohibitive. The second option is to hire an outside consultant or a service provider that offers a package of services for a prescribed annual fee.

At American Portfolios (AP), our RIA clients may take advantage of a comprehensive suite of compliance services that are fully integrated with our technology platform, allowing them to benefit from accurate reporting, online access and customized views at a highly-competitive cost structure.

Sources:

1. http://www.investmentnews.com/article/20160201/FREE/160209994/shift-of-sec-resources-to-ria-oversight-not-likely-to-stop-push-for

See referenced disclosure (2) at http://blog.americanportfolios.com/disclosures/ 

About The Author

Frank A. Tauches

 

EVP American Portfolios Holdings, Inc. & Chief Legal Counsel 
631.439.4600, ext. 206 

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