2019 SEC Exam Priorities Zero In on High Fees, Conflicts of Interest, and Mutual Fund & ETF Risks

Attorney Advertising Disclaimer

The Securities and Exchange Commission announced its 2019 examination priorities, with an emphasis on protecting investors—especially senior clients and retirement accounts—from excessive fees and expenses, broker or firm conflicts of interest, and risky mutual fund and exchange-traded fund (ETF) investments.

Explaining that "every dollar an investor pays in fees and expenses is a dollar not invested," the SEC vowed to make sure brokers and financial advisers accountable adequately disclose fees and expenses to their clients. Both FINRA and SEC investigators alike had previously identified inadequate disclosures as a problem area in the securities industry.

Conflicts of interest similarly drew enough attention for the SEC to add it to the 2019 list. In August 2018, the SEC ordered Merrill Lynch to pay $8.9 million for failing to disclose a material conflict of interest to investors, collecting $4.03 million in fees without disclosing to clients a key interest the firm had in recommending a certain unnamed product associated with those fees.

In addition to using/recommending inferior affiliated service providers and products to clients instead of more suitable products not affiliated with the firm that may actually be more suitable for clients—thus harming investors—the conflict-of-interest area of concern also includes unsuitable loans, including illicitly borrowing funds from clients.

The SEC also identified mutual funds and exchange traded funds (ETFs) as exceptionally important areas for oversight due to the potential for disclosure failures and excessive fees (see above), as well as suitability concerns that come with the recommendation of a complex or risky product for an investor with an unsophisticated or conservative-to-moderate profile, tolerance, or objective.

Finally, the SEC vowed to continue its fight against elder abuse in 2019, noting that the financial exploitation of seniors remains an area of concern. This also includes non-seniors saving for retirement, and involves questions of firm supervision and oversight.

If you have invested with a broker or financial adviser whose failure to adequately disclose fees and expenses/commissions, conflicts of interest, and risk; or whose recommendation of a complex product such as an ETF or other unsuitable investment in contravention of your objectives or risk tolerance preferences has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.