02.12.2018
By John D'Antona

QUICK TAKE: Wrap Programs Should Eye SEC Exam

Registered Investment Advisors (RIAs) and brokers associated with wrap trading and fee programs take heed – the Securities and Exchange Commission has just made its 2018 exam priority report public.

Mark Viani

Once again, the SEC will be focused on many areas of interest but one of particular importance is the wrap sub-advisory business and those participants there.

See the report here: https://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2018.pdf

In careful examination, under Point iii of the text, the SEC makes it clear that it continues to examine proper disclosure related to the process of trading away and trading away fees. With  the wrap industry now firmly in the SEC’s crosshairs, one must be especially vigilant nowadays.

Here is an excerpt from the report:

Wrap Fee Programs

“We will continue to examine registered investment advisers and broker-dealers associated with wrap fee programs, which charge investors a single bundled (wrapped) fee based on a percentage of assets for investment advisory and brokerage services. We will review whether investment advisers are acting in a manner consistent with their fiduciary duty and whether they are meeting their contractual obligations to clients. Areas of interest will include whether (i) the recommendations to invest in a wrap fee program and to continue in the program are reasonable, (ii) conflicts of interests are disclosed in compliance with applicable regulatory requirements, and (iii) investment advisers are obtaining best execution and disclosing costs associated with executing trades through another broker-dealer.”

Also in the report, the SEC included a section on “Never-Before-Examined Investment Advisers” where it stated; “Given the percentage of investment advisers that are either newly registered or that have not been examined in some time, we will continue to make risk-based assessments and select those investment advisers for examination that have elevated risk profiles.”

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