In rapid succession, the SEC has issued warnings and announced sanctions against registered investment advisers for fee and expense practices, false statements regarding assets under management, and misleading performance data.  No one should be surprised that the SEC is actively seeking to uncover transgressions in the RIA field.

Initially, the SEC’s Office of Compliance Inspections and Examinations issued a Risk Alert outlining a variety of RIA failures concerning the proper calculation and disclosure of fees and expenses.   See https://www.sec.gov/ocie/announcement/risk-alert-advisory-fee-expense-compliance.  In particular, the alert detailed a series of failures that OCIE found in its examinations of RIAs, among other things, RIAs failed to properly value assets, overbill, use incorrect fees or time periods.

Similarly, the SEC also sanctioned a principal of a closed RIA for falsely stating it was subject to SEC registration.  See https://www.sec.gov/litigation/admin/2018/ia-4875.pdf.  Although we believe it admirable for someone to want to achieve SEC RIA registration status, you want to be accurate when you make this claim.  Apparently, this individual was not, and lying to the SEC will always incur its wrath.

Finally (and this is a pet peeve with us), the SEC also sanctioned a RIA for using misleading performance data.  See https://www.sec.gov/litigation/admin/2018/ia-4885.pdf.  The RIA was caught using hypothetical back-tested performance data– a pretty big no-no.  We are constantly advising RIA clients of the pitfalls in using any type of performance data, and this case illustrates how closely the SEC will look at its use.

In sum, RIAs have to be careful the SEC is watching.

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