SEC Enforcement of Investment Adviser Compliance Policies


A federally registered investment adviser must formulate, adopt and maintain, and implement, certain policies specified by SEC rules. That obligation applies regardless of the adviser’s size or scope of activities. Although certain of the policies may seem cumbersome or irrelevant, particularly to an adviser with only a few employees, the SEC will insist on them. The SEC will enforce an adviser’s obligation regarding those policies even in the absence of any material client complaints or any connection with allegedly fraudulent activities.

That is illustrated by the SEC’s recently announced enforcement actions against three federally registered advisers. The SEC’s actions against two of the advisers were apparently based on those advisers’ failure to adopt and implement any written compliance policies and procedures (and, in one case, even after SEC examiners had warned the adviser of the deficiency). The failure to adopt any policies, I suspect, is relatively unusual. The SEC’s action against the third adviser, Asset Advisors, LLC, presents a somewhat more instructive situation.

Asset Advisors was an approximately 12-year-old advisory business, owned and managed by an individual, with six employees. According to the SEC Order:

  • Asset Advisors was slow to adopt written compliance policies when required by SEC rules;
  • The compliance policies adopted by Asset Advisors were not completely adapted or tailored to its business or circumstances;
  • The owner-manager “reluctantly” served as the chief compliance officer of Asset Advisors “by default,” without previous experience and without having, or seeking, any education or training for that position;
  • Asset Advisors did not really implement its adopted policies – e.g., it did not periodically collect any securities-transactions or securities-holding reports from its employees, as required by its adopted code of ethics; and
  • Asset Advisors was the subject of two SEC examinations between 2007 and 2010, and did not act to address the deficiencies with its compliance policies that were identified by those examinations.

The failures to act by Asset Advisors and its owner-manager-CCO were sufficiently extreme that the SEC considered them willful. The consequences were also extreme. In the SEC Order, Asset Advisors committed to cease its business, withdraw its registration as an investment adviser, transfer each of its client accounts (with consent) to another registered investment adviser and pay a fine or penalty to the SEC.

OUR TAKE: The SEC’s action against Asset Advisors, LLC is a reminder to registered investment advisers that the SEC will enforce, even against smaller advisers, the obligation to adopt and implement the compliance policies required by SEC rules. More particularly, however, a registered investment adviser should be mindful that (1) its compliance policies should not simply be forms provided by an advisory consultant, but should be tailored to its particular business, circumstances and clients, and (2) its adopted policies should not be ignored or disregarded, but should be implemented in accordance with their terms.

The publications contained in this site do not constitute legal advice. Legal advice can only be given with knowledge of the client's specific facts. By putting these publications on our website we do not intend to create a lawyer-client relationship with the user. Materials may not reflect the most current legal developments, verdicts or settlements. This information should in no way be taken as an indication of future results.

Search Tips:

You may use the wildcard symbol (*) as a root expander.  A search for "anti*" will find not only "anti", but also "anti-trust", "antique", etc.

Entering two terms together in a search field will behave as though an "OR" is being used.  For example, entering "Antique Motorcars" as a Client Name search will find results with either word in the Client Name.


AND and OR may be used in a search.  Note: they must be capitalized, e.g., "Project AND Finance." 

The + and - sign operators may be used.  The + sign indicates that the term immediately following is required, while the - sign indicates to omit results that contain that term. E.g., "+real -estate" says results must have "real" but not "estate".

To perform an exact phrase search, surround your search phrase with quotation marks.  For example, "Project Finance".

Searches are not case sensitive.

back to top