One of the most challenging and yet important things for investment advisory firms with investment adviser representatives (IARs) operating from multiple locations to do is to ensure that such IARs are being reasonably supervised to prevent their violation of securities laws.
The SEC is keenly focused on this topic, as demonstrated by an enforcement action announced last week where an investment adviser was fined $400,000 for failing to supervise an IAR that engaged in improper allocation of trades that resulted in preferred treatment for the IAR and his family members, at the expense of the IAR’s clients.
This risk is particularly acute for investment advisers who retain IARs to “tuck in” under the adviser’s umbrella, and yet such IARs essentially continue to run their own practices under such umbrella. This risk has also been exacerbated since the pandemic where advisers allow employees to work remotely for significant periods of time.
Advisory firms should not leave it to IARs to ensure their own compliance with the firm’s compliance policies and procedures. Advisers must ensure that there are appropriate touchpoints with such IARs to ensure that the IARs are complying with the firm’s policies and procedures.
