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News October 18, 2004 Issue

Top SEC Deficiency Findings

Like lists? Here’s a few, provided by Bill Meck of the SEC’s Philadelphia office during last week’s NRS conference:

Top 10 deficiencies found in SEC exams of investment advisers:

  • Information disclosure, reporting and filing;
  • Information processing and protection;
  • Performance advertising and marketing;
  • Principal trading;
  • Best execution;
  • Portfolio management;
  • Custody deficiencies;
  • Pricing of client portfolios;
  • Trade allocations; and
  • AML procedures.

Most common deficiencies by percentage of advisory exams in the last five years:

  • Form ADV/Brochure - 71 percent of exams find a deficiency in this area
  • Books and records - 53 percent
  • Custody - 39 percent
  • Internal controls - 38 percent
  • Conflicts of interest - 32 percent
  • Marketing/performance - 33 percent
  • Best execution - 19 percent

Most common deficiencies by percentage of investment company exams in the last five years:

  • Internal controls - 47 percent of exams find a deficiency in this area
  • Registration and filings - 39 percent
  • Conflicts of interest - 35 percent
  • Boards of directors - 35 percent
  • Books and records - 28 percent
  • Fidelity bonding - 22 percent
  • Marketing/performance - 14 percent