Recent Observations About Common Deficient and Industry Practices Related to Wrap Fee Programs

      July 26th | 2021

      The Division of Examinations (the “Division”) of the Securities and Exchange Commission (“SEC”) published observations regarding common deficient practices and industry practices related to investment adviser management of wrap fee programs. The Division’s wrap fee risk alert noted the continued development of Wrap Fee Programs, as positive when they offer clients a steady price for otherwise variable fees. However, the Division observed that adviser’s will often use wrap fee arrangements to trade less frequently therefore reducing their own costs without reducing their fees.

      The Division’s wrap fee exams focused on; consistency with fiduciary duty obligations, the adequacy of the examined advisers’ disclosures, and the effectiveness of the examined advisers’ compliance programs. The Division noted common deficiencies in “policies and procedures regarding the tracking and monitoring of the wrap fee programs; and disclosures, including disclosures regarding conflicts, fees, and expenses.” The Division also noted an inconsistent, or lack of enforcement of wrap fee policies and procedures; lack of or inadequately completed annual reviews, and adviser’s recommendations for client’s participations not being in the best interest of the clients.

      Key takeaways from the Divisions observations:

      • Advisers should monitor trading activity in clients’ accounts effectively,
      • Assess whether a wrap fee program is in the best interest of clients,
      • Review disclosures to ensure consistent wrap fee disclosures,
      • Adequately disclose conflicts of interest,
      • Develop and effectively implement wrap fee compliance programs, and
      • Annually review the effectiveness of your compliance policies and procedures.

      Titan encourages advisers to wrap fee clients to familiarize themselves with the Division’s observations and to implement compliance program changes as necessary.

      Previous post Next post

      More like this

      Preliminary Statements for FINRA BD and IA Renewal Feeds are Available for Viewing

      November 9th | 2021 As of yesterday, November 8th, Preliminary Statements for FINRA BD and IA renewal feeds are available…
      Read more

      Examination of Advisers’ Practices for Principal and Cross Trades Involving Fixed Income Securities

      July 26th | 2021 The Division of Examinations (the “Division”) of the Securities and Exchange Commission (“SEC”) conducted extensive examination…
      Read more

      CFTC Staff Issues Advisory to Swap Dealers

      June 24th | 2021 The CFTC recently issued an advisory to swap dealers clarifying the use of internal models in…
      Read more

      Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3 under the Investment Advisers Act

      June 22nd | 2021 The SEC recently approved an order that adjusts for inflation the dollar amount thresholds of the…
      Read more

      Proposed Rule Change to Increase the National Securities Clearing Corporation Minimum Required Fund Deposit

      June 22nd | 2021 The National Securities Clearing Corporation (“NSCC”) recently proposed rule change to increase the minimum Required Fund…
      Read more

      FINRA Eliminates the Order Audit Trail System (OATS) Rules

      June 22nd | 2021 FINRA recently announced September 1, 2021 as the effective date for the elimination of the Order…
      Read more