Managing Risk: A Guide for Investment Advisers


As an investment adviser, you make your living by predicting, weighing, and ranking risks for your clients. But do you pay equal attention to the risks that you and your firm face? As we leave behind the tumultuous Aughts, now is the perfect time to revisit your compliance policies and internal controls to ensure that you are doing everything possible to safeguard your firm’s future.

This is particularly true given recent changes at the Securities and Exchange Commission (the “SEC”). During 2008 and 2009, the SEC became the focus of intense national scrutiny and skepticism. There was a sense that the SEC had not fulfilled its mandate of protecting investors and enforcing the securities laws. During 2009, the SEC underwent a changing of the guard at the top levels. The SEC’s new leadership –Chairman Mary L. Shapiro and Director of the Division of Enforcement Robert Khuzami – has pledged to improve the agency’s detection and enforcement efforts. And as we move into 2010, the SEC will have significantly more resources to do so. On December 16, 2009, President Obama signed the appropriations bill for fiscal year 2010 funding the SEC at nearly $1.12 billion which represents an increase of $100 million (9.7%) over Obama’s budget request and $156 million (16%) over the SEC’s fiscal year 2009 level. The President’s proposed budget for 2011 would increase funding by an additional 11% to $1.23 billion. With increased focus and increased funding, the SEC promises to be active in 2010 and beyond.

Although we encourage you to holistically assess the effectiveness your controls, there are some areas that deserve your special attention—because these areas are already receiving special attention from the SEC. For this article, we examined the SEC’s enforcement actions, speeches, press releases, and special projects to determine where the SEC has been (and will likely continue to be) most active. Through our research, we identified three topics—insider trading, asset valuation, and custody of assets—that appear to be of particular interest to the SEC and provide suggestions on how you may avoid ending up in the SEC’s crosshairs.

Presented at the National Society of Compliance Professionals Southern Regional Meeting, February 2010. To read the full article, click on the PDF linked below.

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