Less than eight months since the publication of the Securities and Exchange Commission’s Division of Examinations 2023 priorities, the organization tasked with overseeing registered investment advisors, U.S. markets and investors released a new set of priorities for 2024 on Monday.
The examination of investment advisors ranked number one on the SEC’s list of seven priorities.
The priorities, which are published annually by the SEC’s Division of Examinations, provide financial advisors, and the wealth management industry in general, with insights about which areas the SEC believes pose the biggest potential risk to investors. They also act as a guide for advisors undergoing examinations.
“Continuing to make our examination priorities public increases transparency into the examination program and encourages firms to focus their compliance and surveillance efforts on areas of potentially heightened risk to retail investors,” said Division of Examinations’ Director Richard R. Best in a statement. “We hope that aligning the publication of our examination priorities with the beginning of the SEC’s fiscal year will provide earlier insight to registrants, investors, and the marketplace of adjustments in our areas of focus year to year.”
The SEC’s Division of Examinations said they planned to focus on investment advice provided to clients about products, investment strategies, and account types, specifically complex, high-cost, and illiquid products such as variable annuities, REITs, and leveraged ETFs. The SEC said they may also focus examinations on advisors who provide investment advice to older investors and those saving for retirement, as well as look closely at “unconventional strategies,” such as those that claim to address rising interest rates.
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The division also plans on looking at whether advisors’ compliance programs truly reflect their practices, including compensation structures, client base, operations, and potential market risks. These exams will focus on advisors’ marketing practices, compensation arrangements, and valuation assessments of illiquid assets, such as commercial real estate.
The examination of investment companies, self-regulatory organizations, including the SEC’s sister organization FINRA, and clearing agencies all made the list.
While some priorities have stayed the same, such as the focus on the SEC’s new marketing rule and Regulation Best Interest, the SEC has notably dropped ESG from its list but did not give a reason. The SEC had included ESG on its list for the past three reports.
The SEC said in the report that these priorities were selected because they “reflect the division’s assessment of certain risks, issues, and policy matters arising from market and regulatory developments, information gathered from examinations, and other sources, including tips, complaints, and referrals, and coordination with other divisions and offices at the commission as well as other regulators.”
“The Division of Examinations plays a critical role in protecting investors and facilitating capital formation,” said SEC Chair Gary Gensler in a statement. “In examining for compliance with our time-tested rules, the division helps registrants understand the rules as well as ensures that markets work for investors and issuers alike. The division’s efforts, as laid out in the 2024 priorities, enhance trust in our ever-evolving markets.”
