The Securities and Exchange Commission' Office of Compliance Inspections and Examinations has launched an initiative directed at investment advisers that have never been examined, in particular those that have been registered with the Commission for three or more years. OCIE previously announced that examining these advisers would be a priority in 2014.

These examinations will concentrate on the advisers' compliance programs, filings and disclosure, marketing, portfolio management, and safekeeping of client assets. Excluded from this initiative, are advisers to private funds, which are being examined pursuant to a separate “presence exam” initiative launched in October 2012.

The Never-Before Examined Initiative includes two distinct approaches: risk-assessment and focused reviews. The risk-assessment approach is designed to obtain a better understanding of a registrant and may include a high-level review of overall business activities, with a particular focus on the compliance program and other essential documents needed to assess the representations made on disclosure documents. The focused review approach includes comprehensive, risk-based examinations of higher-risk areas of the business and operations, including reviews of compliance programs, with registered investment advisers are required to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act.

Staff will consider the effectiveness of compliance programs through a review of advisory books and records to determine if an adviser has adequately identified conflicts of interest and compliance-related risks, adopted appropriate policies and procedures to mitigate and manage them, and has empowered a competent Chief Compliance Officer to administer the compliance program.

Investment advisers must also disclose all material facts regarding conflicts or potential conflicts of interest so that clients can make an informed decision regarding entering into or continuing an advisory relationship. Examiners will analyze an adviser's filings and disclosure documents to assess the content and scope of disclosures that have been made.

Investment advisers may utilize marketing materials to solicit new clients or retain existing ones, but examiners will seek out false or misleading statements about the business or performance record, and any manipulative, fraudulent, or deceptive activities.

SEC staff will also review and evaluate an investment adviser's portfolio decision-making practices, including the allocation of investment opportunities and whether the adviser's practices are consistent with disclosures provided to clients.

Starting later this year, OCIE will invite SEC-registered investment advisers who have yet to be examined to attend regional meetings where they can learn more about the examination process.