SEC Risk Alert Announces Retail Retirement Examinations

June 22, 2015

In a "National Exam Program /Risk Alert: Retirement-Targeted Industry Reviews and Examinations Initiative," (Office of Compliance Inspections and Examinations (OCIE), 1 Volume IV, Issue 6, June 22, 2015), the Securities and Exchange Commission's ("SEC's") Office of Compliance Inspections and Examinations ("OCIE") announced that it is launching a multi-year Retirement-Targeted Industry Review and Examination Initiative, ("ReTIRE"), which will examine SEC-registered investment advisers and broker-dealers with particular emphasis on retirement savings by retail investors. The SEC will place an emphasis on four key areas:
  1. Reasonable Basis for Recommendations. The staff will assess the actions of registrants and their representatives for the reasonableness of their recommendations when: 
    (i) selecting the type of account; 
    (ii) performing due diligence on investment options; 
    (iii) making initial investment recommendations; and 
    (iv) providing on-going account management.

  2. Conflicts of Interest. Business structure, compensation structure, personal issues or relationships, or relationships with service providers present potential conflicts of interest. Generally, the staff expects that registrants:
    (i) identify material conflicts of interest, 
    (ii) design compliance programs to address the risks caused by those conflicts, and/or 
    (iii) disclose material conflicts of interest. 

    In order to evaluate whether compliance programs are appropriately identifying conflict-related risks and incentives upon which representatives make recommendations, sales and account selection practices will be reviewed in light of the:
    (i) fees charged, 
    (ii) services provided to investors, and 
    (iii) expenses of such services. 

  3. Supervision and Compliance Controls. The staff will review registrants' controls, oversight, and supervisory policies and procedures, and may further focus on: 
    (i) registrants with operations in multiple and/or distant branch offices and 
    (ii) representatives with outside business activities.

  4. Marketing and Disclosure. The staff will review registrants' brochures, sales and marketing materials, and disclosures to retail investors to confirm that the: 
    (i) content of the materials and representations of representatives are true and accurate and do not omit material information where there is a duty to disclose;
    (ii) disclosures regarding the fees are complete and accurate; and 
    (iii) credentials or other endorsements are valid and meet any stipulated standards.