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Our Take Blog
SEC Will Examine Firms that Hire Previously-Disciplined Advisers and Brokers

SEC Will Examine Firms that Hire Previously-Disciplined Advisers and Brokers

broker-check

The SEC’s Office of Compliance Inspections and Examinations has launched a “Supervision Initiative” to examine supervision practices of investment advisers that employ previously-disciplined advisers or brokers.  OCIE will focus on a firm’s compliance practices including its policies and procedures for hiring, reporting, oversight, and complaint handling.  The staff will also review disclosures, conflicts of interest, and marketing materials.  The Supervision Initiative cites a recent study concluding that reps with a disciplinary history are 5 times more likely to engage in misconduct (See https://www.cipperman.com/2016/03/04/academic-study-reports-widespread-financial-adviser-misconduct/.)

OUR TAKE: The SEC wants to discourage firms from hiring disciplined advisers and brokers.  This sweep puts the burden on such hiring firms to prove that they can prevent future violations.

https://www.sec.gov/ocie/announcement/ocie-2016-risk-alert-supervision-registered-investment-advisers.pdf

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