WASHINGTON – The head of a new SEC examination unit is putting advisors who cater to clients planning for retirement on notice that they should expect greater scrutiny over the next few years.
The commission has tapped Peter Driscoll to lead the new Office of Risk and Strategy within the Office of Compliance Inspections and Examinations, a role where he will help identify market risks and coordinate where to channel the SEC's scarce exam resources.
One of the major areas of focus for Driscoll's team will be the practices of advisors serving retirees as the SEC advances a multiyear initiative that is evaluating how firms handle issues like account selection, sales practice, suitability and supervision.
"We're focused on what firms are doing to ensure that there are not abusive practices in the retirement space," Driscoll said at the Investment Adviser Association's annual compliance conference.
To date, the SEC has conducted over 160 exams focusing on retirement issues. Of those, 70% have looked at advisors, with the remainder focused on broker-dealers.
In heading the new office, Driscoll will have the title of chief risk and strategy officer, and will lead OCIE's investment advisor and investment company exam staff. Driscoll joined the SEC in 2001 as a staff attorney, and has served as OCIE's managing executive since 2013.
He noted there are numerous red flags the SEC is looking for, and that the commission is continually trying to improve its exam program through the use of data analytics to focus on larger firms and those that carry the most risk.
The SEC has said that it examined about 10% of RIAs last year, but that those practices accounted for 30% of total AUM in the industry.
In the retirement space, Driscoll said that his team is taking a hard look at how firms are handling rollovers and how they are marketing and advertising their practice. In particular, the SEC is looking at advisors who pitch retirement advice or products to prospective clients through free-lunch seminars.
"We get a lot of tips and complaints with folks that are doing a lot of seminars," he said.
The suitability of investment recommendations for retirees also remains a concern. Driscoll urged advisors to continually reassess how clients' funds are allocated to ensure that the investment strategy continues to be appropriate as clients age and their needs change.
When the SEC comes in for an exam, he says, examiners expect advisors to be able to show their work. For example: "Why are you recommending a certain product to an 86-year old retiree?" Driscoll said.
His team is also taking a close look at supervision issues, particularly in cases where a firm rapidly expands, opening new branch offices that might develop their own culture and flout the compliance expectations of the home office.
"If there's high growth there, one of the concerns we have is, has the compliance and supervision of those reps out in the field also grown and expended and ensured that there's some controls?" he said.
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