SEC Challenges Multi-Branch Advisers to Fix Compliance and Supervision
The SEC’s Office of Compliance Inspections and Examinations (OCIE) has issued a Risk Alert warning advisers with multi-office operations to shore up their compliance practices. Reviewing results from its 2018 multi-branch initiative, OCIE found widespread compliance and supervision deficiencies. Examiners uncovered weak compliance and supervision practices including inconsistent application of policies and procedures, custody rule violations due to commingling or unchecked authority over client accounts, undisclosed wrap fees, overcharging, failure to disclose disciplinary histories, misleading marketing materials, and insufficient personal trading reporting. OCIE also witnessed multi-office firms that failed to disclose and sell the best mutual fund share class, engage in trading without regard to short-term redemption fees, and mitigate conflicts of interest. OCIE recommends that firms with multiple locations implement uniform policies and procedures with centralized monitoring of billing, personal securities transactions, portfolio decisions, and advertising.
Implementing compliance programs for a multi-office adviser is far more complicated and costly than designing a program for a single location firm. The more independence that the home office allows, the more difficult it becomes to herd the cats.