OCIE Risk Alert – supervision, compliance and multi-branch offices

OCIE Risk alert

Findings from the recent OCIE examination of geographically dispersed advisers should be taken on board by all investment advisers according to the SEC.

On November 9, the Office of Compliance Inspections and Examinations released a Risk Alert highlighting findings from a series of examinations that focused on SEC-registered investment advisers operating from numerous branch offices and with operations geographically dispersed from the adviser’s principal or main office. The examinations focused on the assessment of the compliance and supervisory practices relating to advisory personnel working within the advisers’ branch offices.

The Risk Alert’s focus may, at first glance, not appear to apply to your advisory business. However, the SEC noted that many of the issues discussed in the Risk Alert are not unique to advisers with branch offices and therefore should be considered by all advisers. OCIE specifically highlighted the susceptibility of advisers as a result of geographically dispersed personnel which, as a result of the pandemic describes, many more advisers, at least temporarily.

The examinations focused on practices in the following areas:

Compliance programs and supervision

Compliance programs

OCIE said “the vast majority of the examined advisers were cited for at least one deficiency related to the Compliance Rule.” More than half of examined advisers had compliance policies and procedures that were:

  1. Inaccurate because they included outdated information, such as references to entities no longer in existence and personnel that had changed roles and responsibilities.
  2. Not applied consistently in all offices.
  3. Inadequately implemented because, among other things, the compliance department did not receive records called for in the policies and procedures.
  4. Not enforced.


OCIE highlighted a number of practices that gave advisers custody of client assets saying “advisers did not have policies and procedures that limited the ability of supervised persons to process withdrawals and deposits in client accounts, change client addresses of record, or both”.

Fees and expenses

OCIE emphasized advisers’ lack of policies and procedures around identifying and remediating instances where undisclosed fees were charged to clients. OCIE also found many fee billing issues related to the lack of oversight over fee billing processes which resulted in overcharges to clients, including:

  • Use of inaccurate fee calculations by misapplying tiered fee structures or employing incorrect valuations for the calculations.
  • Inconsistent application of fee reimbursements, including advisory fee offsets and refunds for prorated fees.
  • Charging fees different than the rates included in the advisory agreements or on assets that were to be excluded from advisory fees.

Oversight and supervision of supervised persons

OCIE cited supervision deficiencies related to:

  • Failure to disclose material information, including disciplinary events of supervised persons.
  • Portfolio management.
  • Trading and best execution, including enforcing policies and procedures the adviser had in place.


Examples of problematic advertising practices named by OCIE included:

  • Performance presentations that omitted material disclosures.
  • Superlatives or unsupported claims.
  • Professional experience and/or credentials of supervised persons or the advisory firm that were falsely stated.
  • Third-party rankings or awards that omitted material facts regarding these accolades.

Code of ethics

OCIE reiterated several of its previous points related to code of ethics deficiencies. OCIE cited advisers’ failure to comply with reporting requirements, including submitting transactions and holdings reports, deficient reviews of transaction and holdings reports, improper identification of access persons within the business and incomplete code of ethics. OCIE mostly cited these same deficiencies in its June 2020 Risk Alert related to Private Fund Managers.

Investment advice

More than half of the examined advisers were cited to deficiencies related to portfolio management practices related to oversight of investment decisions, disclosure of conflicts of interest, and trading allocation decisions. The areas highlighted are in line with previously cited deficiencies particularly as it relates to conflicts of interest and trading and allocation.

Conflicts of interest disclosures

The conflicts of interest issues that OCIE cited generally related to unfair or incomplete disclosure. OCIE believes that advisers were not fully and fairly disclosing financial incentives for the advisers and/or their supervised persons to recommend specific investments.

Trading and allocation of investment opportunities

Cited deficiencies related to trading and allocation related to

  • The lack of documentation demonstrating the advisers’ analysis regarding obtaining best execution for their clients.
  • Completing principal transactions involving securities sold from the firms’ inventory without prior client consent.
  • Inadequate monitoring of supervised persons’ trading

The deficiencies hark back to the 2018 OCIE Risk Alert specifically related to best execution.


The deficiencies cited by OCIE should not be earth-shattering revelations given that many of the deficiencies reiterate or reflect previous deficiencies. Regardless of the specific focus of the examinations (advisers operating from numerous branch offices), all advisers can learn from and improve on the underlying issues cited by OCIE. It is important to pay careful attention to the issues OCIE highlights and review your firm’s policies and procedures in these areas as they clearly are a focal point for the SEC Staff during reviews.

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