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Saturday, December 2, 2017

Ways to Supervise an Alternative Office Location

By Cory Roberson, Principal at RIA Review and RIA Consults

Supervision of Alternative Office locations

On December 12, 2016, the SEC Office of Compliance Inspections and Examinations (OCIE) issued an examination alert for the supervisory practices of SEC-registered investment advisers with branch offices (“Multi-branch office initiative”).

For this initiative, the SEC defined a “Branch Office” as a place of business other than the adviser’s principal office and place of business at which the investment adviser regularly provides advisory services, solicits, meets with, or otherwise communicates to clients.
(see footnotes:

Above, we referred to this type of arrangement as an “alternative office” location to avoid ambiguity between the "branch office" definition described in our other blog on "Registering an office".

The OCIE will examine SEC registrants to determine whether its supervisory practices are in compliance with federal securities laws.  The agency will hold a spotlight on the risks that arise as a result of firm’s unique business model, such as the supervisory practices of multiple branch offices.  State registrants can also choose to use similar practices for their firms.

Best Practices for reviewing procedures: 
Firms with multiple branch offices should confirm that the following policies are accurate:
Rule 204(A) – 1: Code of Ethics
Rule 206(4) – 7:  Supervision/Internal controls

The OCIE will also examine the effectiveness and oversight of advisory services provided at the branch offices.

The review may consist of the following:
Consistency of policies and procedures at main and branch offices;
Documented assessment of risks associated with having a branch office;
Personnel designated with the role of overseeing the branch offices—including their level of access to documents and sensitive information;
Accuracy of advisors’ filings of branch offices, locations, and advisory personnel;
Testing/control procedures for risks associated with branch offices.

Risk areas to review:
Fees and Expenses (e.g. calculations and invoicing sent to clients)
Advertising (e.g. review and approval process for main and branch offices)
Code of Ethics (e.g. oversight of personal securities transactions, training, and safeguarding sensitive information)
Custody (e.g. compliance with custody rules at branch offices)
Investment Recommendations. (e.g. acting as fiduciary in the best interest of clients; factoring in risks with branch office model; and increased risks with business activities)
Supervision/due diligence process for investment recommendations (e.g. client suitability documentation)
Conflicts of Interest. (e.g. identification of conflicts or potential conflicts of interest from business activities/branch offices)
Allocation of Investment Opportunities. (e.g. any changes to allocations/risk of investments based on branch office locations)
Cybersecurity.  Risk associated with having associated persons located in multiple locations.

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Securities and Exchange Commission (SEC)

Cory Roberson is Principal of RIA Review, a compliance and document management portal ( - 110+ users and growing.  He is also Principal of RIA Consults -Roberson Consults Group), a consulting firm providing compliance, operations, and business development services for registered investment advisors and next-gen fintech entrepreneurs ( more than 160 SEC & State advisors clients across the US (including a few in Europe).   Through his mission-driven arm, SoCap Missions, he has volunteered in countries such as S. Korea, China, S. Africa, Thailand, and India.

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