Financial Advisors under Scrutiny in 2018
According to the Securities and Exchange Commission, the regulator will be paying attention when investment advisors overcharge investors when less expensive options are available.
The Office of Compliance Inspections and Examinations says in its 2018 National Exam Program examination priorities letter, that “Examiners will review, among other things, whether fees and expenses are calculated and charged in accordance with the disclosures provided to investors.”
Examiners will also be carefully scrutinizing advisory account fees, particularly where the fee is dependent on the value of the account, to assess whether assets are valued in accordance with investor agreements, disclosures and the firm’s policies and procedures, the agency said.
The regulator has reportedly increased the numbers examined about 15 percent of all investment advisors, in 2017, up from 8 percent five years ago.
The unit said it will be flagging the following practices and scenarios:
Recommending that clients’ invest, or remain invested, in mutual fund share classes where higher sales loads or distribution fees are changed and the conflicts of interest are not disclosed to investors.
• Switching business or compensation models, especially if you go from charging commissions on executed trades to charging clients’ a percentage of assets.
• Allowing client accounts to be orphaned, especially in cases where his or her accounts have not been assigned to a new rep after their prior advisor left the firm.
• Using wrap fee accounts. The SEC wants to see that wrap fee programs are fulfilling their fiduciary standard, that their disclosures are fair and complete, and that advisors are obtaining best execution and disclosing the costs associated with executing trades through another broker-dealer.
• Working as a private fund advisor who manages funds with a high concentration of investors, including those designed for non-profit organizations and pension plans.
This information is all publicly available and is provided by The White Law Group.
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