The agency plans to get tougher on brokers and firms throughout 2017
The SEC’s Office of Compliance Inspections and Examinations (OCIE) has a new series of goals for 2017. The agency’s department, which is responsible for examining brokers, firms, and financial products to prevent fraudulent activities, identify risks, and inform government policies, has consulted employees throughout the organization to determine its direction for the new year.
Throughout this process, the SEC has focused on three main points of analysis: researching risks for retail investors, looking at risks for retired and elderly investors, and examining overall market risks.
OCIE’s priorities for 2017
In generations past, investing was a simpler process; with only a few options out there, an ordinary investor could simply choose to buy stock from a well-known company or purchase shares in a well-regarded mutual fund without extensive analysis. However, today’s retail investing market is incredibly layered and complex.
In the last few years and decades, new products like exchange-traded funds (ETFs), access to online commodities and currency trading markets, the emergence of crowdfunding, a resurgence in penny stocks, and the proliferation of online investing advice of varying quality have all contributed to an increased sense of confusion among many retail investors.
To help protect investor rights, the OCIE wants the SEC to look into many of these industry changes to identify products, services, firms, and brokers who may be misleading or defrauding investors or negatively affecting the integrity of the financial markets.
The SEC plans to focus on monitoring and analyzing the integrity of financial tech and cloud-based investing platforms
One of the biggest changes in the financial industry in the last few years has been the explosion of financial technology, including online investing platforms which use artificially intelligent “robo advisors” to offer investment advice to clients and even automatically manage portfolios online.
While fully online investing platforms have potential benefits, including reduced cost and ease-of-use, they also present the potential for fraud and other misconduct. Without the accountability of real-life interactions, it’s easier for employees that engage in unethical or illegal behavior to conceal their identity and motives. Fully-online systems may also be more vulnerable to hacking, phishing, and a variety of other forms of identity theft, which may be causing the SEC to take a closer look.
The SEC also wants to examine ETFs due to concerns about volatility
While exchange-traded funds (ETFs) offer a variety of advantages, including high levels of liquidity, they also come along with dangers and risks, including a higher level of volatility. Earlier this year, in a market upheaval sometimes known as the “flash crash,” the market price of multiple ETFs fell drastically below their estimated market value, making many investment experts wary of recommending them to clients.
Some analysts are concerned that ETFs are not effectively regulated by current securities laws, and this lack of regulation could lead to serious consequences for investors who believe ETFs are just mutual funds with higher liquidity – a common misconception that SEC regulators want to combat.
Wrap fees and unexamined investment advisors and firms will also be analyzed
Wrap fees are comprehensive charges for providing an investor with a combined bundle of services, like investment advice, research, and brokerage services. While opening an account on a wrap fee instead of a commission basis may save money for investors in some cases, in others it may lead to fraud and abuse. In one 2016 case, investing firm Raymond James was fined $600,000 by the SEC for failing to properly supervise its wrap fees, leading investors to pay out an amount far beyond what they were originally informed.
The SEC also wants to take a look at advisors and firms that haven’t yet been examined to keep standards high and to make sure that financial industry players are conducting their businesses with integrity. For those brokers and firms that have a tendency to play loose with ethics rules and retail investing regulations, the knowledge that the SEC takes the time to examine most, if not all companies and advisors may encourage them to conduct business with more integrity.
SEC aims to take a hard look at brokers who are repeat offenders – and the firms that hire them
Despite the best efforts of organizations like FINRA and the SEC, the financial industry remains rife with brokers who are repeat offenders and the subjects of multiple securities arbitrations – including individuals with a consistent track record of misleading or defrauding customers throughout their careers. The SEC would like to focus more of its investigative efforts on determining if brokers with a high risk of recidivism are violating any major regulations, and it also wants to take a hard look at the brokerage firms that hire them.
Additionally, the SEC plans investigate the oversight and compliance policies of these companies in an attempt to ensure that brokerage firms maintain a reasonable standard in hiring representatives to market investment products to customers.
Supervision practices of multi-branch investment advisory firms also to examined
Finally, the OCIE will examine multi-branch advisors to analyze the risks that limited oversight of local branch locations may have for many investors. Multi-branch advisory firms enjoy several benefits, including the ability to use the name and resources of a larger firm in order to secure potential deals for clients plus benefiting from economies of scale. However, due to their decentralized nature and reduced supervision from high-level company executives, branch employees also have a greater potential to engage in misconduct, fraud, or other harmful behaviors – something the SEC feels it may be able to prevent with greater oversight.
If you or a close family member has lost money due to being defrauded by an online investing platform, “robo-advisor,” the employees of a multi-branch investment firm, a broker with a record of securities violations or FINRA arbitration claims, or you believe you have been significantly misled about the inherent risks of investing in ETFs, you may be able to recover some or all of your losses. To see if a brokerage firm you’ve invested in has been charged by the SEC, visit the SEC Newsroom today. You can also investigate a firm or individual broker through FINRA’s free BrokerCheck service.
The attorneys at Silver Law Group are leaders in the field of securities arbitration and financial fraud. We represent individual and institutional investors across the United States who have lost money at the hands of a trusted financial advisor.
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