With the ever-changing landscape of investment advisors, the Securities and Exchange Commission (SEC) has taken measures to keep its risk-based approach harmonized with market shifts. On September 6, the SEC issued a risk alert, explicating the elements factored into its risk-based approach when selecting SEC-registered investment advisers (advisers) for examination. In an effort to keep advisers informed, the SEC continues to highlight its dynamic, risk-based approach that consistently aligns with market shifts.
As revealed in the risk alert, the SEC’s methodology of selecting advisers for examination is determined by numerous aspects. Some of these elements include the adviser’s firm configuration and operations, examination history, disciplinary and regulatory history, and industry experience of employees and representatives. Additional factors encompass elements such as the financial sector in which the adviser operates and the types of investments recommended or managed.
The details provided in this alert serve as invaluable for advisers to better understand the SEC risk-based selection process and thus, to assist them in better preparing for potential examinations. While the SEC emphasizes that the risk-based approach is continually adapting to market shifts, understanding the underlying core elements scrutinized during examinations can go a long way for any advisor under the SEC registration.
For an elaborate understanding and full details, it is recommended for advisers and legal professionals alike to read through this detailed documentation from ‘Troutman Pepper’. To find further details about the risk factors and examination aspects, refer to this detailed review.