The Compliance Squeeze

Opiela, Nancy
May 1999
Journal of Financial Planning;May99, Vol. 12 Issue 5, p50
Academic Journal
This article focuses on the issues related to the auditing of the U.S. Securities and Exchange Commission (SEC). The odds of being audited by the SEC are greater all the time. Since the National Securities Markets Improvement Act of 1996 (NSMIA) divided the licensing authority of registered investment advisers between the SEC and the states, the SEC has exclusive licensing authority over registered investment advisers managing $25 million or more. Investment advisers should expect to be audited at least every five years. Because the SEC has fewer advisers to regulate, the general feeling is that advisers are getting a more thorough review from regulators than they did in the years before NSMIA. Planners and experts alike say NSMIA has resulted in a different mind-set when it comes to compliance and marketing. An area where Gene Gohlke of SEC often sees problems is with performance calculations--not the performance recorded on client account statements, but the performance used by advisers to advertise their business. While there are various methodologies for calculating performance, the SEC's only guidance is whatever approach an adviser uses should not be misleading and that the adviser should disclose enough about the methodology used so that the client can understand what the numbers represent.


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