The SEC’s Office of Compliance Inspections and Examinations (OCIE) announced a retirement targeted industry review and examinations (ReTIRE) initiative in June 2015.
According to the June Risk Alert, The OCIE focus would be on certain higher-risk areas of registrants’ sales, investment, and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed, including the following key areas:
- A Reasonable Basis for Recommendations. Examiners will assess the firms and their representatives for consistency with these obligations when selecting the type of account; performing due diligence on investment options; making initial investment recommendations; and, providing on-going account management.
- Conflicts of Interest. Generally, firms must identify material conflicts of interest; design compliance programs to address the risks those conflicts cause; and, disclose material conflicts of interest. Examiners will review firms’ sales and account selection practices in light of the fees charged, the services provided to investors, and the expenses of such services. Examiners will use the information from these reviews to evaluate whether compliance programs identify and address risks associated with the conflicts and whether firms disclose and address those conflicts, such as compensation structures that may incentivize representatives to make certain recommendations.
- Supervision and Compliance Controls. Firms must reasonably supervise persons acting on their behalf and adopt effective compliance programs, which should include reasonably designed policies and procedures that are tailored to each firm’s business. Examiners will review firms’ controls and supervisory policies and procedures adequacy and may focus on firms with operations in multiple or distant branch offices and representatives with outside business activities.
- Marketing and Disclosure. Firms must generally ensure that materials distributed to investors are not deceptive or misleading. Examiners will review firm brochures, sales and marketing materials, and disclosures to retail investors to validate that the content and representations of representatives are true and accurate and do not omit material information where there is a duty to disclose. They will also determine if disclosures regarding the fees are complete and accurate; and, if credentials or other endorsements are valid.
Since announcing the initiative, the SEC has conducted 208 ReTIRE exams. Of these, 80 percent were examinations of investment advisers, and 20 percent were of broker dealers.