The SEC Issues Guidance

Updated: Sep 4, 2019

August 29th | 2019

Targeting Policies, Procedures, and Disclosures of Advisers with Disciplinary Incidents

On July 23, 2019, the SEC released a risk alert focusing on compliance programs, firm-wide supervisory practices, and disclosures of RIAs, particularly those who employ or have employed individuals with a history of disciplinary incidents.

Summarized in the table below, the SEC noted five categories of key deficiencies in compliance programs and identified firm-wide best practices that can improve compliance in firms exhibiting deficiencies in: (1) compliance policies and procedures, (2) public disclosures, (3) conflicts of interest, (4) supervision, and (5) oversight.

Compliance Policies and Procedures

Policies and procedures must sufficiently cover activities of previously- disciplined individuals. Firms should:

  • Adopt written policies and procedures to enhance due diligence practices associated with hiring supervised persons to identify disciplinary history.

  • Adopt written policies that establish heightened supervision practices to oversee persons with certain disciplinary histories.

  • Create processes to verify the accuracy and completeness of supervised persons’ self-attestations regarding disciplinary events. The information should fully and clearly describe the disciplinary event.

  • Adopt written policies and procedures to address client complaints related to supervised persons.

  • Include written policies on supervision of persons operating out of remote offices for compliance with supervisory programs, particularly when supervised persons with disciplinary histories are located in branch or remote offices.

  • maintain true and accurate books and records necessary to determine the financial standing of the firm and identify individuals with access to sensitive information.

Annual reviews should distinguish particular risk areas relevant to the Firm and must include steps to adequately document the reviews.

Firms should maintain a list of all accounts in which the adviser is vested with discretionary authority.

Public Disclosure

Public disclosures in public statements and documents must be full and fair, not be misleading, and include all material facts to be adequate. To do this, advisers must:

  • Not omit material disclosures regarding disciplinary histories of certain supervised persons or the adviser itself. This is more likely if an adviser solely relies on their supervised persons self-reporting.

  • Must not have incomplete, confusing, or misleading information about any disciplinary events.

  • Must timely update and deliver disclosure documents to clients and update their Form ADV with any new disciplinary events.

Conflicts of Interest

All material conflicts of interest that could affect the advisory relationship must be identified, addressed, and fully and fairly disclosed, particularly those regarding compensation arrangements and account management.

Conflicts of interest should disclose compensation arrangements which could affect the impartiality of advice to clients. These can include:

  • Forgivable loans; or

  • Supervised persons being required to incur all transaction-based charges,which may incentivize less frequent trading on behalf of clients.


Firms must adequately supervise and set appropriate standards of business conduct for their supervised persons.

  • Firms should document the responsibilities of supervised persons in their policies and procedures and clearly outline the expectations for these persons.

  • Advisers should confirm whether fees charged by supervised persons were disclosed and that the services the client paid for were performed.

  • Firms should have advertising policies and procedures that provide guidance to supervised persons who prepare their own advertising materials or websites.


Policies and procedures must be consistent with a Firm’s actual business practices and disclosures. If an adviser’s policies and procedures assign specific individuals to perform specific tasks in connection with compliance, these individuals must actually perform the duties assigned to them. These duties also need to be formally documented in a manner compliant with a firm’s policies and procedures. Examples include key regulatory and business responsibilities such as:

  • Monitoring the appropriateness of client account types

  • Maintaining true, accurate, and current books and records

In identifying commonly observed deficiencies and proposing a set of best practices, the SEC hopes that advisers will reflect upon their practices, policies, and procedures and consider ways they can improve compliance. Speak to your compliance professionals to learn about how you can improve disclosures, procedures, and firm practices to best fit you. #TradeUpToTitan

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