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Firms Must Plan Well to Pass Surprise SEC Exams

November 28, 2017

The likelihood of a surprise exam by the SEC will rise in 2018 — and RIAs need to plan ahead to pass one, Brian Hourihan writes on WealthManagement.com

Around 70% of the regulator’s exams lead to firms getting slapped with deficiency letters while 10% end up referred to the SEC Enforcement Division, according to SEC data cited by Hourihan, regulatory compliance officer at Gemini Companies. Meanwhile, SEC chairman Jay Clayton has said the watchdog will boost its RIA exams by 20% next year. At the same time, a recent survey suggests many RIAs think they wouldn’t pass one, according to Hourihan.

To pinpoint weaknesses and test their compliance programs, RIAs should take a SEC mock exam, he recommends. This involves hiring a compliance consultant to oversee the mock exam and work with the firm to ramp up compliance policies, according to Hourihan.

RIAs should also study recent exam request letters from the SEC to ensure they can provide what’s demanded and address any deficiencies from prior SEC communications, he writes.


It’s also important to examine any changes in the business and compare them against current policies and procedures, according to Hourihan. Firms should also assess their ability and that of all of their employees to furnish requested documents in the format prescribed by the SEC, he writes.

In addition, RIAs should identify and address any deficiencies in tracking follow-up data submissions, according to Hourihan. It could also be a good idea to bring on an expert to manage an actual SEC exam, he writes.

By Alex Padalka
  • To read the WealthManagement.com article cited in this story, click here.