By Cory Roberson, Principal at RIA Review and RIA Consults
Supervision of Alternative Office locations
On
December 12, 2016, the SEC Office of Compliance Inspections and
Examinations (OCIE) issued an examination alert for the supervisory practices
of SEC-registered investment advisers with branch offices (“Multi-branch office
initiative”).
For this initiative, the SEC defined a “Branch Office” as a place of business other than the adviser’s principal office and place of business at which the investment adviser regularly provides advisory services, solicits, meets with, or otherwise communicates to clients.
(see footnotes: https://www.sec.gov/files/risk-alert-multi-branch-adviser-initiative.pdf)
Above, we referred to this type of arrangement as an “alternative office” location to avoid ambiguity between the "branch office" definition described in our other blog on "Registering an office".
The
OCIE will examine SEC registrants to determine whether its supervisory
practices are in compliance with federal securities laws. The agency will
hold a spotlight on the risks that arise as a result of firm’s unique business
model, such as the supervisory practices of multiple branch offices.
State registrants can also choose to use similar practices for their firms.
Best Practices for
reviewing procedures:
Firms with
multiple branch offices should confirm that the following policies are
accurate:
Rule
204(A) – 1: Code of Ethics
Rule
206(4) – 7: Supervision/Internal controls
The
OCIE will also examine the effectiveness and oversight of advisory services
provided at the branch offices.
The review may
consist of the following:
Consistency
of policies and procedures at main and branch offices;
Documented
assessment of risks associated with having a branch office;
Personnel
designated with the role of overseeing the branch offices—including their level
of access to documents and sensitive information;
Accuracy
of advisors’ filings of branch offices, locations, and advisory personnel;
Testing/control
procedures for risks associated with branch offices.
Risk areas to review:
Fees and Expenses (e.g. calculations
and invoicing sent to clients)
Advertising (e.g. review and
approval process for main and branch offices)
Code of Ethics (e.g. oversight of
personal securities transactions, training, and safeguarding sensitive
information)
Custody (e.g. compliance
with custody rules at branch offices)
Investment
Recommendations.
(e.g. acting as fiduciary in the best interest of clients; factoring in risks
with branch office model; and increased risks with business activities)
Supervision/due
diligence
process for investment recommendations (e.g. client suitability documentation)
Conflicts of
Interest.
(e.g. identification of conflicts or potential conflicts of interest from
business activities/branch offices)
Allocation of
Investment Opportunities. (e.g. any changes to allocations/risk of investments
based on branch office locations)
Cybersecurity. Risk
associated with having associated persons located in multiple locations.
Email us at: cory@riareview.com or call us at: 650-305-2688.
Regulators:
Securities and Exchange Commission (SEC)
Compliance and Business Management
FIN Compliance (FINCompliance.io) is a consortium of compliance services including: RIA Consults-Roberson Consults Group, a compliance consulting firm, RIA Review, a compliance-management software tool (SaaS), B-D Review, a RIA/Broker-Dealer compliance management software tool, and FINLancer is a business management portal featuring: E-signature tools; Invoicing integration, Vendor Directory, continuity directory*, business client document portal, and more (available by Q3 2019). Access all services on one site: FINCompliance.io.
Impact
FIN Missions (FINmissions.com) provides business support group sessions for other entrepreneurs. In addition, Cory has volunteered for more than fifteen youth programs in locations such as like S. Korea, China, S. Africa, Thailand, and India.
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