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November 9, 2020

Observations from OCIE’s Examinations of 

Investment Advisers: Supervision, Compliance and Multiple Branch Offices*

I. Introduction

The Office of Compliance Inspections and Examinations (“OCIE”) conducted a series of 

examinations that focused on SEC-registered investment advisers operating from numerous 

branch offices and with operations geographically dispersed from the adviser’s principal or main 

office (“Multi-Branch Initiative” or “Initiative”).1 This Initiative focused on, among other things,

the assessment of the compliance and supervisory practices relating to advisory personnel 

working within the advisers’ branch offices.2

This Risk Alert contains observations resulting from the examinations under the Initiative, 

including nearly 40 examinations of advisers’ main offices combined with one or more 

examinations of each adviser’s branch offices. These advisers collectively managed 

approximately $110 billion in assets for about 185,000 clients, the majority of whom were retail 

investors. Most firms selected for examination under the Initiative conducted their advisory 

business out of 10 or more branch offices. 

The staff generally observed a range of deficiencies across the examinations. More specifically, 

some of the advisers had not fully implemented policies and procedures addressing advisory 

activities occurring in branch offices and in geographically dispersed operations. This Risk Alert 

discusses common deficiencies identified by OCIE staff. It also discusses examples of practices 

 * This statement represents the views of the staff of the Office of Compliance Inspections and Examinations. It is not a rule, 

regulation, or statement of the U.S. Securities and Exchange Commission (“Commission”). The Commission has neither 

approved nor disapproved of its content. This statement, like all staff guidance, has no legal force or effect: it does not alter 

or amend applicable law, and it creates no new or additional obligations for any person.

1 For purposes of this Initiative, the term branch means an office or “place of business” other than the adviser’s “principal 

office and place of business” – both of which are defined in Rule 222-1 under the Investment Advisers Act of 1940 

(“Advisers Act”). An adviser’s principal office is where the firm regularly provides advisory services, solicits, meets with, 

or otherwise communicates to clients. The risks associated with multi-branch advisers were first highlighted in OCIE’s 2016 

Examination Priorities (see OCIE, “Examination Priorities for 2016” (January 11, 2016)) and became an examination 

initiative later that year (see OCIE Risk Alert, “Multi-Branch Adviser Initiative” (December 12, 2016)). These advisers

continue to be an area of interest for examinations because they: (1) often advise retail clients; and (2) have unique risks and 

challenges related to the design and implementation of their compliance programs and oversight of advisory services 

provided through remote offices. 

2 The examinations under this Initiative were concluded in 2018. OCIE will continue to monitor industry trends and practices, 

including telework conducted from dispersed remote locations, and will provide its observations to its colleagues in the 

Division of Investment Management. We note that staff in the Division of Investment Management stated that it would not 

recommend enforcement action if a firm does not update its Form ADV in order to list the temporary teleworking addresses 

of its employees (see Form ADV and IARD Frequently Asked Questions: Form ADV Item 1.F). 
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certain advisers implemented which aimed to improve compliance and supervisory practices at 

those firms.

II. Initiative Focus and Relevant Regulations

The Multi-Branch Initiative focused on certain practices of advisers in the following areas:

• Compliance programs and supervision, including whether the adviser had adopted and

implemented reasonably designed written policies and procedures under the “Compliance 

Rule.”3 The staff focused on advisers’ compliance programs in both their main offices and

branch offices, as well as on the oversight by the main offices of advisory services provided 

through branch offices. In particular, the staff reviewed firms’ main and branch office 

practices for: (1) compliance with certain rules, such as the “Code of Ethics Rule”4 and 

“Custody Rule”;

5 and (2) consistency with fiduciary obligations, such as those related to fees, 

expenses, and advertising.

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• Investment advice.

7 The staff evaluated the processes by which firms’ supervised persons 

located in branch offices provided investment advice to advisory clients, including the 

formulation of investment recommendations and the management of client portfolios. In 

conducting these examinations, the staff focused on the advisers’: (1) oversight of investment 

recommendations, both within specific branch offices and across all of the advisers’ branch 

offices; (2) management and disclosure of conflicts of interest; and (3) allocation of 

investment opportunities.

 3 Advisers Act Rule 206(4)-7 requires SEC-registered advisers to adopt and implement written policies and procedures that 

are reasonably designed to prevent violations of the Advisers Act and rules thereunder by advisers and their supervised 

persons. Advisers Act Section 203(e)(6) also highlights that establishing supervisory procedures reasonably designed to 

prevent and detect such violations and following these procedures are important steps advisers should take in supervising 

persons subject to their oversight.

4 Advisers Act Rule 204A-1 requires SEC-registered advisers to establish, maintain, and enforce their codes of ethics.

5 Advisers Act Rule 206(4)-2 requires SEC-registered advisers that have custody of their clients’ funds or securities to safeguard

those funds against theft, loss, misappropriation, or financial reverses of an adviser.

6 See, e.g., In re Transamerica Financial Advisors Inc., Advisers Act Rel. No 3808 (April 3, 2014) (settled). In Transamerica, 

the Commission brought an enforcement action against an adviser that did not apply advisory fee discounts to certain retail 

clients in several of its programs, contrary to its disclosures to clients and its policies and procedures. A branch office 

mistakenly believed that the main office was automatically aggregating the accounts without the branch office’s direction. 

As a result, the branch office did not notify the appropriate staff at the main office which accounts should be aggregated or

whether certain clients had requested account aggregation. Advisers Act Section 206(4) and Rule 206(4)-1 prohibit SECregistered advisers from using any advertisement that contains any untrue statement of material fact or that is otherwise 

misleading. Also, Advisers Act Sections 206(1) and (2) make it unlawful for an adviser “to employ any device, scheme or 

artifice to defraud any client or prospective client ... [or] engage in any transaction, practice, or course of business which 

operates as a fraud or deceit upon any client or prospective client.”

7 Advisers Act Section 206 imposes a fiduciary duty on advisers (see, e.g., Commission Interpretation Regarding Standard of 

Conduct for Investment Advisers, Advisers Act Rel. No. 5248 (June 5, 2019)). An adviser must provide advice to a client 

that is in the best interest of the client, including advice that is suitable based on a reasonable understanding of the client’s 

objectives. Advisers also must eliminate or at least expose through full and fair disclosure all conflicts of interest that might 

cause them – consciously or unconsciously – to render advice which is not disinterested.
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III. Staff Observations

The staff observed that the branch office model may pose certain risk factors that advisers should

consider in designing and implementing their compliance programs and in supervising personnel

and processes occurring in branch offices. These risks may be heightened when the main and 

branch offices have different practices. For example, advisers that do not monitor, review, and/or 

test their branch office activities may not be aware that the compliance controls they have 

adopted are not effectively implemented or do not appropriately address the intended risks and 

conflicts in these remote locations. While many of the issues discussed below are not unique to

advisers that use the branch office model, such entities may be more susceptible to the issues 

discussed herein because, among other things, geographically dispersed personnel may develop 

different practices or disparate ways of communicating.

A. Compliance and Supervision

• Compliance programs. The vast majority of the examined advisers were cited for at least one 

deficiency related to the Compliance Rule. In particular, the staff observed that more than 

one-half of these advisers had compliance policies and procedures that were: (1) inaccurate

because they included outdated information, such as references to entities no longer in 

existence and personnel that had changed roles and responsibilities; (2) not applied 

consistently in all branch offices; (3) inadequately implemented because, among other things, 

the compliance department did not receive records called for in the policies and procedures; 

or (4) not enforced. The Compliance Rule issues often were related to the advisers failing to

recognize that they had custody of clients’ assets, failing to adequately implement and 

oversee their fee billing practices, or both.

8 Examples of compliance program-related 

shortcomings in these two areas are discussed below.

o Custody of client assets. Advisers did not have policies and procedures that limited the 

ability of supervised persons to process withdrawals and deposits in client accounts,

change client addresses of record, or do both. 

 Advisers had custody of their clients’ assets due to a variety of practices, including 

instances where the adviser: (1) comingled its assets with those of its clients; (2) was 

the trustee for client accounts (or its supervised persons were trustees); (3) was the 

general partner to an advised limited partnership; (4) received client checks in branch 

offices and deposited these checks with the client custodians; and/or (5) had various 

arrangements in place that gave it broad disbursement authority over client assets. By 

taking these actions, the examined advisers, perhaps unknowingly, had custody of 

client assets and were therefore required to follow the provisions of the Custody Rule.

o Fees and expenses. Advisers did not have policies and procedures that included 

identifying and remediating instances where undisclosed fees were charged to clients. In 

addition, policies and procedures governing such fees, including those related to wrap fee 

 8 OCIE issued a Risk Alert that highlighted custody-related issues, including failure by advisers to recognize that they have 

custody (see OCIE, “Significant Deficiencies Involving Adviser Custody and Safety of Client Assets” (March 4, 2013)) and 

a Risk Alert that addressed advisory fee-related issues (see OCIE, “Overview of the Most Frequent Advisory Fee and 

Expense Compliance Issues Identified in Examinations of Investment Advisers” (April 12, 2018)).
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programs, were not enforced. Most fee billing issues were related to the lack of oversight 

over fee billing processes, and in some cases, this resulted in overcharges to clients. 

 Clients were overcharged advisory fees in a variety of ways, such as when the 

adviser: (1) used inaccurate fee calculations by, for example, misapplying tiered fee 

structures or employing incorrect valuations for the calculations; (2) inconsistently

applied fee reimbursements, including for advisory fee offsets for 12b-1 fees from 

certain mutual fund purchases and refunds for prorated fees paid in advance by clients 

who terminated their accounts; and (3) charged fees different than the rates included 

in advisory agreements or on assets that were to be excluded from advisory fees.

• Oversight and supervision of supervised persons. Supervision deficiencies related to: (1) the 

failure to disclose material information, including disciplinary events of supervised persons; 

(2) portfolio management, such as the recommendation of mutual fund share classes that 

were not in the client’s best interest; and (3) trading and best execution, including enforcing 

policies and procedures the adviser had in place. Supervision deficiencies were particularly 

prevalent when the advisers oversaw branch office personnel with higher-risk profiles, and 

this included instances related to the identification and documentation of disciplinary events.9

• Advertising. Advisers often had deficiencies related to advertising, both generally and 

specifically regarding the materials prepared by supervised persons located in branch offices 

and/or supervised persons operating under a name different than the primary name of the 

adviser (also known as “doing business as” or “DBAs”). Examples of problematic 

advertisements included: (1) performance presentations that omitted material disclosures; (2) 

superlatives or unsupported claims; (3) professional experience and/or credentials of 

supervised persons or the advisory firm that were falsely stated; and (4) third-party rankings 

or awards that omitted material facts regarding these accolades. 

• Code of ethics. Several of the advisers were cited for code of ethics deficiencies because they 

failed to: (1) comply with reporting requirements, including by submitting transactions and 

holdings reports less frequently than required by the rule or not submitting such reports at all; 

(2) review transactions and holdings reports; (3) properly identify access persons; or (4) 

include all required provisions in their codes of ethics. Examples of provisions omitted from 

codes of ethics include those requiring: a review and approval process prior to supervised 

persons investing in limited or private offerings; initial and annual holdings report 

submissions; and/or quarterly transaction report submissions.

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 9 OCIE issued a Risk Alert of findings from its “Supervision Initiative” that highlighted weaknesses identified in oversight 

practices of SEC-registered advisers that previously employed, or currently employ, any individual with a history of 

disciplinary events (see OCIE, “Observations from Examinations of Investment Advisers: Compliance, Supervision, and 

Disclosure of Conflicts of Interest” (July 23, 2019)). This Risk Alert also provided examples of processes that could help 

firms address similar weaknesses identified during the Multi-Branch Initiative examinations.

10 OCIE issued a Risk Alert highlighting deficiencies or weaknesses with respect to advisers’ compliance with the Code of 

Ethics Rule (see OCIE, “The Five Most Frequent Compliance Topics Identified in OCIE Examinations of Investment 

Advisers” (September 14, 2017)).
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B. Investment Advice

• Portfolio management. More than one-half of the examined advisers were cited for 

deficiencies related to portfolio management practices. These often were related to: (1) 

oversight of investment decisions, including the oversight of investment decisions occurring 

within branch offices; (2) disclosure of conflicts of interest; and (3) trading allocation 

decisions. Examples of the issues observed are discussed below.

o Oversight of, or reasonable basis for, investment recommendations. Observations of 

deficiencies associated with the oversight or assessments of investment recommendations 

were often related to mutual fund share class selection practices and disclosures of such 

practices, as well as investment recommendations and disclosures associated with wrap 

fee programs. For example, the staff identified:

 Mutual fund share class selection and disclosure issues. Advisers purchased share

classes of mutual funds that charged 12b-1 fees instead of lower cost share classes of 

the same mutual funds that were available to clients. The advisers stood to benefit 

from the clients paying for higher cost share classes, which created a conflict of 

interest that was not disclosed to clients.

.

 Wrap fee program issues. Advisers failed to adequately assess whether programs 

were in the best interests of clients, erroneously charged commissions, misrepresented

or failed to have appropriate disclosures regarding their wrap fee program (i.e., fees, 

trading away practices, and delegation of responsibility), or failed to implement 

appropriate oversight of trading away practices, including monitoring whether subadvisers traded away. These practices typically caused clients to incur additional 

costs, such as ticket charges and other fees. 

 Rebalancing issues. Advisers implemented automated rebalancing of accounts that 

caused clients to incur short-term redemption fees from mutual funds. Certain 

advisers did not consider whether these automated processes, which caused clients to 

pay additional fees, were in the best interest of the clients. 

o Conflicts of interest disclosures. Several advisers were cited for issues related to conflicts 

of interest that were not fully and fairly disclosed, such as expense allocations that 

appeared to benefit proprietary fund clients over non-proprietary fund clients. Several 

advisers also did not fully and fairly disclose financial incentives for the advisers and/or 

their supervised persons to recommend specific investments.

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o Trading and allocation of investment opportunities. Advisers were cited for: (1) the lack 

of documentation demonstrating the advisers’ analysis regarding obtaining best execution

for their clients; (2) completing principal transactions involving securities sold from the

firms’ inventory without prior client consent; and (3) inadequate monitoring of 

 11 See supra n. 7. The Commission provided the following guidance on what constitutes full and fair disclosure of conflict of 

interest: (1) the appropriate level of specificity, including the appropriateness of stating that an adviser “may” have a 

conflict, and (2) considerations for disclosure regarding conflicts related to the allocation of investment opportunities among 

eligible clients. 
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supervised persons’ trading, including the improper allocation of block trade losses to 

clients rather than to the supervised persons.

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C. Staff Observations Regarding Compliance Practices

During the course of these examinations, the staff observed a range of practices with respect to 

branch office activities that firms may find helpful in their compliance oversight efforts. The

practices noted below do not constitute a comprehensive list of practices necessary for a firm to 

meet its legal obligations and not every practice on the list may be applicable to all types of 

firms. Rather, the list contains a sample of observed practices that that may assist advisers in 

designing and implementing policies and procedures under the Compliance Rule.

• Advisers adopted and implemented written compliance policies and procedures that: (1) 

were applicable to all office locations and all supervised persons – regardless of whether 

these individuals were independent contractors or employees of the adviser; (2) include 

unique aspects associated with individual branch offices; and (3) specifically address 

compliance practices necessary for effective branch office oversight. The staff observed that 

some advisers had policies and procedures to oversee all of their office locations (i.e., main 

and branch offices) and to address the specific activities taking place at, and the clients 

managed by, their branch offices. Regardless of whether the advisers had policies and 

procedures that were tailored for their branch offices, many firms had policies and 

procedures for compliance monitoring and oversight of branch offices, which typically 

included compliance reporting by their branch offices. For example, some advisers 

established:

 Uniform policies and procedures regarding main office oversight for monitoring and 

approving advertising, particularly in instances where branch offices were permitted 

to advertise through DBA websites. 

 Centralized, uniform processes to manage client fee billing. Advisers with 

centralized, uniform processes tended to limit exceptions from these approved 

processes. These centralized processes mitigated instances in which supervised 

persons or branch offices had independent billing options or fee arrangements that 

deviated from client agreements or disclosures.

 Centralized processes for monitoring and approving personal trading activities for 

all supervised persons located in all office locations. For some advisers, the 

centralized process included an automated review and approval of personal trading 

 12 See supra n. 7. As a fiduciary, an adviser has the duty to seek best execution of a client’s transactions, including where the 

adviser has the responsibility to select broker-dealers to execute client trades. It also must disclose any conflicts related to 

the allocation of investment opportunities among eligible clients. An adviser’s compliance program should “include 

procedures by which the adviser satisfies its best execution obligation” and the firm should document its annual review of 

this obligation. See Compliance Programs of Investment Companies and Investment Advisers, Advisers Act Release No. 

2204 (December 17, 2003) and Advisers Act Rule 204(2). In addition, a variety of legal requirements and provisions may be 

implicated when executing principal and cross trades, including Advisers Act Sections 206(1), (2), and (3) and Rules 

206(3)-2 and 206(4)-7. See OCIE, “Investment Adviser Principal and Agency Cross Trading Compliance Issues” 

(September 4, 2019).
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requests and transactions. Many of these advisers also provided supervised persons 

with training related to their codes of ethics and personal trading policies.

 Uniform portfolio management policies and procedures, portfolio management 

systems, or both, across all office locations. For some advisers, trade orders were also 

centralized through the main office. 

• Advisers performed compliance testing or periodic reviews of key activities at all branch 

offices at least annually, with some firms conducting reviews more frequently. Examples of 

compliance oversight and testing of branch office activities included:

 Validating that branch offices undertook compliance or supervision reviews of their 

portfolio management decisions, both initially and on an on-going basis.

 Designating individuals within branch offices to provide portfolio management 

monitoring, primarily to assess whether investment recommendations were consistent 

with clients’ investment objectives or recommendations. 

 Consolidating the trading activities occurring within branch offices into the advisers’ 

overall testing practices.

 Conducting compliance reviews that did not solely rely on self-reporting by 

personnel. 

• Advisers established compliance policies and procedures to check for prior disciplinary 

events when hiring supervised persons and periodically confirming the accuracy of 

disclosure regarding such information. In addition to initially reviewing for disciplinary 

histories when hiring personnel, some advisers also had procedures that included periodically 

reviewing disciplinary histories, documenting such reviews, and providing heightened 

supervision of individuals with disciplinary histories.

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• Advisers required compliance training for branch office employees. Most advisers required 

compliance-related training for branch office employees, targeting areas identified as needing 

improvement based on their branch office reviews. Typically such training was required 

semi-annually or at least annually.

IV. Conclusion

The examinations within the scope of this review resulted in a range of actions. In response to 

the staff’s observations, advisers elected to amend disclosures, revise compliance policies and 

procedures, or change certain practices. In sharing the information in this Risk Alert, OCIE 

encourages advisers, when designing and implementing their compliance and supervision 

frameworks, to consider the unique risks and challenges presented when employing a business 

model that includes numerous branch offices and business operations that are geographically 

dispersed and to adopt policies and procedures to address those risks and challenges. 

 13 See supra n. 9. All registered advisers must promptly disclose in Form ADV certain legal or disciplinary events that would 

be material to a client’s or a prospective client’s evaluation of the adviser’s integrity (see Amendments to Form ADV, 

Advisers Act Release No. 3060 (July 28, 2010)). 
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This Risk Alert is intended to highlight for firms risks and issues that OCIE staff has identified. In addition, this Risk 

Alert describes risks that firms may consider to (1) assess their supervisory, compliance, and/or other risk 

management systems related to these risks, and (2) make any changes, as may be appropriate, to address or 

strengthen such systems. Other risks besides those described in this Risk Alert may be appropriate to consider, and 

some issues discussed in this Risk Alert may not be relevant to a particular firm’s business. The adequacy of 

supervisory, compliance and other risk management systems can be determined only with reference to the profile of 

each specific firm and other facts and circumstances.