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Office of Compliance Inspections and Examinations Publishes New Retirement-Targeted Industry Reviews and Examinations Initiative

On Monday, June 22, 2015, the Securities Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) announced that it was launching a multi-year Retirement-Targeted Industry Reviews and Examinations (“ReTIRE”) Initiative.  The new ReTIRE Initiative follows OCIE’s 2015 Examination Priorities, which focuses on “examining matters of importance to retail investors and investors saving for retirement.”

The ReTIRE Initiative addresses high-risk areas of broker-dealers’ or investment advisers’ sales, investment and oversight procedures, with emphasis on select areas where retail investors saving for retirement may be harmed.  Specifically, the ReTIRE Initiative will focus on the following areas:

  • Reasonable Basis for Investment Recommendations: Broker-dealers and investment advisers must have a reasonable basis when making recommendations or providing investment advice.  OCIE staff will assess how registered representatives and investment adviser’s: 1) select account types; 2) perform due diligence on investment options; 3) make initial investment recommendations; and 4) provide on-going account management.
  • Conflicts of Interest: Broker-dealers and investment advisers may have conflicts of interest that arise from their business structure, compensation structure, personal relationships, or relationships with service providers.  Broker-dealers and investment advisers are expected to identify material conflicts of interest, design compliance programs to address the risks associated with such conflicts and disclose material conflicts of interest to customers.  Through the ReTIRE Initiative, OCIE will review: 1) broker-dealers’ and investment advisers’ sales and account practices in light of fees charged; 2) services provided to customers and the expenses associated with them; 3) compliance programs to identify and address risks associated with conflicts of interest; and 4) material conflicts of interest, such as compensation structure that may incentivize registered representatives or investment adviser representatives to make certain recommendations.
  • Supervision and Compliance Controls: Broker-dealers and investment advisers must reasonably supervise their representatives and adopt effective compliance programs, which should include policies and procedures tailored to the firm’s business.  As part of the ReTIRE Initiative, OCIE staff will review controls, oversight and supervisory policies with a focus on: 1) broker-dealers and investment advisers with operations in multiple and/or distant branch offices and 2) the outside business activities of registered representatives and investment adviser representatives.
  • Marketing and Disclosure: Broker-dealers and investment advisers have a duty to ensure that all marketing materials distributed to customers are not deceptive or misleading.  As part of the ReTIRE Initiative OCIE staff will review marketing materials to ensure that: 1) their content is true, accurate, and does not omit material information; 2) disclosures regarding fees are complete and accurate; and 3) all credentials or endorsements are valid.

By sharing the focus areas of the ReTIRE Initiative, the SEC intends to encourage broker-dealers and investment advisers to improve their supervisory, oversight and compliance programs.  While the OCIE published the ReTIRE Initiative’s primary focus areas, examiners may choose additional topics not covered in the release, when appropriate.  Lax & Neville LLP has been following the OCIE’s 2015 Examination Priorities and previously blogged about them here.  A complete Copy of the OCIE’s press release addressing the new ReTIRE Initiative may be found here.

Lax & Neville LLP has extensive experience in the financial services industry.  Please contact our team of experienced attorneys for a consultation at (212) 696-1999.