Cadwalader attorneys asserted that recent SEC activities demonstrate an increased regulatory focus on the conduct of investment professionals in the wealth-management industry.

The SEC is prioritizing activities by investment advisers that directly impact retail investors, the attorneys said. Recently, the SEC Division of Enforcement resolved actions against financial institutions over issues that include:

  • steering clients to higher-cost products, such as mutual-fund share classes charging higher fees and commissions;
  • abuses in wrap-fee accounts;
  • investment-adviser recommendations to buy and hold highly volatile products like inverse exchange-traded funds;
  • suitability issues involving the sale of structured products to retail investors; and
  • abusive sales practices like churning and excessive trading.

Further, the attorneys highlighted SEC initiatives focused on conduct affecting retail investors, including (i) forming the Retail Strategy Task Force and (ii) launching the Share Class Selection Disclosure Initiative.

The attorneys stated that the SEC is also focusing on financial institutions' sales practices in areas not related to retail investors, such as misrepresentations in the sale of complex products, and cross-trading activities in a number of asset classes that improperly provide an advantage to one client over another.

The memorandum was authored by Matthew Lefkowitz, Kendra Wharton, Lex Urban, Dorothy Mehta, Todd Blanche, Kyle DeYoung and Jason Halper.


Despite some predictions to the contrary, this activity shows that the SEC continues to focus on financial institutions under its current leadership, particularly in the wealth-management area. Given the heightened focus on adviser conduct impacting retail consumers – particularly on conflicts of interest relating to higher-cost investments and sales practices in general – wealth-management firms should carefully review their policies and practices to ensure they adequately instruct advisory personnel to disclose any conflicts of interest and incentivize them to recommend the best deal for their clients, and revisit any training program for advisory personnel. Firms within the SEC's heightened focus should consider developing action plans or taking further preemptive actions, such as performing an independent risk assessment and conducting robust mandatory training programs if they believe they may have potential issues, to better prepare for a possible enforcement inquiry from the SEC or another regulator having authority over the transaction.

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