SEC Examination Priorities

It’s once again that time when I’m responsible for writing our monthly letter to all of you. My favorite part of doing this task is that usually Justin lets me do it from home, as it’s hard for me to write in the often loud and busy environment of our office. An added perk of this is that my cat gets to lay beside me (or occasionally across my laptop) and “help.” A distraction, but a sweet one.

This month I’m going to write about compliance again, which I know is everyone’s favorite topic. For those of you who don’t know, I originally joined up with Anderson Griggs to help out with compliance, and eventually Dad passed the title of Chief Compliance Officer on to me. This means I’m responsible for keeping track of all the new regulations we’re subject to, filing all our annual paperwork and reports, and ensuring we have policies and procedures in place for everything under the sun.

What I wanted to cover in this letter are the SEC’s 2024 Examination Priorities, which were just released. Many investment advisory firms are registered with the SEC and thus are subject to their regulation. Due to our size, we are actually registered through the state of SC and not the SEC (though this could change in the next few years). However, SC requires that we be in compliance with pretty much all SEC rules, so almost everything they put out there applies to us as well.
 
The SEC Examination Priorities document lets advisors, broker-dealers, investment companies, and other market participants know what the SEC will be looking at closely when they audit firms. For us, and for you, these priorities are interesting because they give us an idea of what others out there in the world of investing are doing, as well as what the SEC believes might be considered risky. They also give you a way to check up on us, as they let you know things we should be doing as well as things that, if we were doing them, might cause a bit of concern.
 
The following are what the SEC will be paying close attention to this year:

• Advice regarding complex investment products like variable annuities, non-traded REITs, and leveraged ETFs, and particularly when this advice is given to older investors or investors saving for retirement
• Whether investment advice given is in the best interest of clients
• Any economic incentives that may encourage advisers to recommend certain products over others
• Whether all disclosures regarding any conflicts of interest are given to clients
• Whether polices and procedures and compliance programs in place are adequate
• Marketing practices, to ensure no advertisements are misleading or deceptive
• Billing processes and fee calculations
• Policies for protecting client information
• Policies regarding selecting and evaluating third-party vendors used
• Whether policies for disruptions to business, such as by weather-related incidents, are adequate
• Cybersecurity practices and identity theft training programs for staff
• Crypto assets and emerging technologies such as automated investment tools and artificial intelligence
  

I’m hopeful that once you’ve gotten to the bottom of this list, you’ve reaffirmed to yourself that we are conservative in our character and in our actions, and that we truly have your best interests in mind when we make investment and firm decisions. As you can see, many of these priorities do not apply to us, as they involve risky assets that we would never invest in. Also, our independent status ensures that we do not have an economic incentive to push any particular products to you.
 
As for our policies and procedures, we do have many, which I mentioned earlier. This can be frustrating, but it is meant to protect our clients. For instance, most of you know we won’t take instructions by email for funds disbursements. We always call you to check to make sure the request is truly from you, just to be safe. Also, we do hire an outside IT firm to help us meet our cybersecurity needs. This, along with our policies and procedures, is meant to ensure your information remains safe, but unfortunately breaches are happening in the world all the time. It is impossible to protect against everything. We are, however, doing our best, and are hopeful that you’re staying vigilant too.
 
As for ensuring you are given all of our disclosures, these are published in our ADV firm brochure, and while we have tried to make this document easy to follow, it’s not the most exciting read, as I’m sure you’ve heard us mention before. However, you were given this when you first became a client, and each year we send you a letter asking if you’d like another copy. It is also always available on our website. If we ever make any material changes to this document, we’re required to notify you, which is why we’ve included a notice along with this letter. We recently updated the brochure to add information about the change to Charles Schwab as custodian for your accounts.
 
On that note, I’ll end the compliance talk, but I wanted to briefly thank all of you for your enormous patience with us over the past couple of months while we’ve been going through this transition to Schwab. It has been bumpy, and we’re still working on learning the best ways to handle various tasks, but we’re grateful you’ve stuck with us. Please note that Schwab is still having some delays in processing time, so if you know you will need funds from your accounts, please give us as much advanced notice as you can.
 
Thanks again, and Happy Halloween (from me and my black cat sidekick),
 
Libby