By: Kevin Sullivan, Guest Blogger and Director of Compliance
Published February 21, 2018
It always strikes me as odd how many will be quick to discredit information coming from the SEC’s Office of Compliance Inspections and Examination (OCIE). Usually, the responses range from the doubting Thomas’ to the indifferent and apathetic.
My physics professor was fond of the following statement: “I believe 50% of what I see, 25% of what I read and 10% of what I hear” (indirectly). He may have been ahead of the curve on fake news. Putting that formula into practice, how do we view the OCIE’s most recent exam priorities? Well, having been through and witnessed an SEC audit in person, I’ll start at 50%. It’s real, in-depth and thorough, right from their playbook. Every year I read the SEC’s exam priorities and there is plenty of documented evidence (i.e. fines followed by disciplinary action) for you to believe that they mean what they say, so throw on another 25%. Depending on the source, what you hear can be the hardest to believe and maybe that’s why you should only believe 10% of it. Adding it up brings us to 85%. Already, if you are doubting or dismissing what you don’t want to believe, the odds are against you.
The SEC Is Telling the Truth
The SEC has made it clear they will be transparent in what they are doing and why in their efforts to protect investors and promote compliance. Throughout the year they publish Risk Alerts to identify, address and correct deficient practices. They published six in 2017 alone. Have you checked your 12b-1 holdings and disclosures lately? You should, because they will. Just read the Risk Alert from July 2016 and their most recent “get out of jail free” press release.
In 2017 the OCIE team coverage of investment advisors almost doubled from what it was five years ago. Five years ago, odds were they would get to your office once every 12.50 years. That time frame has now dropped to 6.50 years. With their stated goals increasing the use of technology, that number is sure to continue to drop. You didn’t hear it from me first, but believe me when I tell you it’s only a matter of time before the OCIE team shows up at your office. How do I know? Because they said so. I take them at their word; you should too.