The SEC published its examination priorities for 2013 late last month, and dually registered advisors were at the top of the list.
Recently, more and more financial professionals have taken to wearing two hats, acting as investment advisors to some clients and broker-dealers to others. This arrangement results in a hybrid practice, which blurs the line between the investment advisor and broker-dealer industries and enables the professional to earn money through both fees and commissions. This “continued convergence,” however, is also the reason dually registered advisors are being called a new and potentially potent threat to investor safety.
“[These days] it is not uncommon for a financial professional to conduct brokerage business through a registered broker-dealer that she does not own or control and to conduct investment advisory business through a registered investment adviser that she owns and controls, but that is not overseen by the broker-dealer,” stated regulators in a Feb. 21 announcement. “This business model presents multiple conflicts.”
Regulators said dually registered advisors and their firms should expect an SEC examination at some point in the coming year. In particular, examiners will be reviewing:
To learn why the difference between an investment advisor and broker-dealer matters, read this. For additional information about the SEC’s examination priorities for 2013, click here.
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