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By the Office of Compliance Inspections and Examinations1

VOLUME VI, ISSUE 2 DECEMBER 12, 2016

MULTI-BRANCH ADVISER INITIATIVE

I. Introduction

The Office of Compliance Inspections and Examinations’ (“OCIE”) 2016 

Examination Priorities include examining the supervisory practices of SECregistered investment advisers over advisory personnel in branch offices.2 OCIE is 

issuing this Risk Alert to provide additional information concerning its MultiBranch Adviser Initiative.

II. Background

OCIE examines SEC-registered investment advisers to, among other things, 

determine whether they are in compliance with the federal securities laws, 

particularly the Advisers Act. In recent years, OCIE staff (the “staff”) has observed 

an apparent increase in the use of investment advisers employing a business model 

with numerous branch offices and operations geographically dispersed from the 

adviser’s principal or main office. The use of a branch office model can pose 

unique risks and challenges to advisers, particularly in the design and implementation of a compliance program 

and the supervision of people and processes in branch offices. Accordingly, OCIE is launching the Multi-Branch 

Adviser Initiative to examine investment advisers operating out of multiple branch offices to determine whether 

they are in compliance with the federal securities laws in light of the additional and unique risks that arise as a 

result of operating in this manner. 

 

1 The views expressed herein are those of the staff of the Office of Compliance Inspections and Examinations, in 

coordination with other Securities & Exchange Commission (“SEC or “Commission”) staff, including staff of the 

Division of Investment Management. The Commission has expressed no view on its contents. This document was 

prepared by the SEC staff and is not legal advice.

2 See OCIE, “Examination Priorities for 2016” (January 11, 2016). For purposes of this initiative, when using the term 

“branch” office the staff is generally referring to a place of business other than the adviser’s principal office and place of 

business at which the investment adviser regularly provides advisory services, solicits, meets with, or otherwise 

communicates to clients. Cf. Rule 222-1 under the Investment Advisers Act of 1940 (“Advisers Act”).

In this Alert: 

Topic: Initiative to Examine 

Registered Investment 

Advisers Operating from 

Multiple Locations 

Key Takeaways: Staff 

intends to focus on registered 

investment advisers that 

provide advisory services 

from multiple locations. The 

examinations will focus on 

evaluating the design and 

effectiveness of advisers’ 

compliance programs with 

respect to their oversight of 

advisory services provided at 

remote locations. 
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III. Examinations

Multi-Branch Adviser Initiative examinations will focus on advisers’ compliance programs and the oversight of 

investment advisory services provided at branch offices. Additional focus areas may be chosen for review based 

on the activities or operations of a particular investment adviser.

• Compliance Programs. The Advisers Act “Compliance Rule” requires registered advisers to adopt and 

implement written policies and procedures reasonably designed to prevent and detect violations of the 

Advisers Act and rules by the investment adviser and their supervised persons.3 The staff will evaluate 

the design and effectiveness of an adviser’s compliance program with respect to its oversight of advisory 

services provided at its branch offices. In particular, through interviews and the review of advisory 

records, the staff will assess, among other things, the:

o Implementation of policies and procedures in the main and branch offices;

o Supervision structure, including an assessment of how such supervision is tailored to the unique 

risks in particular branches; 

o Role and empowerment of compliance personnel charged with overseeing branch offices, 

including their level of access to documents and relevant information; and

o Accuracy of information on the adviser’s filings regarding branch offices, including Form ADV, 

as compared to actual practices.

In addition, the staff may focus attention, based on the particular business activities of an examined

adviser, on assessing compliance and testing controls in one or more of the following risk areas:

o Fees and Expenses. The adviser’s calculation of fees and other expenses, including the 

effectiveness of controls over the billing and invoicing processes and communications with 

clients.

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o Advertising. Controls over advertisements, such as the adviser’s process for reviewing and 

approving advertisements, particularly those created or disseminated by its branch offices.

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o Code of Ethics. The implementation of the adviser’s code of ethics, including oversight and 

monitoring of personal securities transactions and whether advisers have properly identified 

access persons at branch offices.

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3 Rule 206(4)-7 under the Advisers Act.

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 Advisers Act §§ 206(4) and 207; see also Rule 206(4)-7; In the Matter of WFG Advisors, L.P., Inv. Adv. Act Rel. No. 

4441 (June 28, 2016).

5 Advisers Act § 206(4); Rule 206(4)-1. In addition, Sections 206(1) and (2) of the Advisers Act make it unlawful for any 

investment adviser using the mails or interstate commerce, directly or indirectly, “to employ any device, scheme or 

artifice to defraud any client or prospective client” or to “engage in any transaction, practice, or course of business which 

operates as a fraud or deceit upon any client or prospective client.”
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o Custody. Compliance with the Custody Rule, including controls related to the identification of 

accounts over which the adviser maintains custody and the involvement of branch office

personnel in making such determinations.7

• Investment Recommendations. As a fiduciary, an investment adviser has an obligation to act in the best 

interests of its advisory clients and to identify and disclose any material conflict of interest.8 The staff will 

review the process by which investment advice, including the formulation of investment 

recommendations and the management of client portfolios, is provided to advisory clients from 

supervised persons located in branch offices. The staff will focus on policies and procedures and 

supervisory controls designed to address specific risks presented in a branch office model regarding the 

provision of advisory services to clients, such as the identification of potential conflicts of interest and the 

level of autonomy supervised persons have in providing advice.9

In addition, the staff may focus attention, based on the particular business activities of an examined

adviser, on assessing compliance and testing controls in certain of the following risk areas:

o Oversight. Supervision and review of investment recommendations made to clients within 

specific branch offices and across branch offices, including processes and controls regarding

investment authority, suitability of the investment advice, and any due diligence that the adviser 

has told clients is undertaken with respect to investments.

o Conflicts of Interest. Identification, management, and disclosure of conflicts of interest that arise 

through branch office activities and personnel, including conflicts arising from various 

compensation arrangements and supervised persons’ outside business activities.

o Allocation of Investment Opportunities. Allocation of investment opportunities among client 

accounts, including how branch offices’ trading activity is monitored and what disclosures are 

made to clients regarding trade allocation. 

In addition to these primary focus areas, examiners may select additional areas for review based on other risks 

identified during the course of the examination.

 

6 Rule 204A-1 under the Advisers Act requires investment advisers to have codes of ethics setting forth, among other 

things, a business standard of conduct. The rule also requires advisers to have provisions in their codes of ethics 

requiring their supervised persons to comply with applicable Federal securities laws, as defined by the rule.

7 SEC-registered investment advisers that have custody of their clients’ funds or securities must safeguard those funds as 

required by the SEC’s Investment Adviser Custody Rule (Rule 206(4)-2). The Investment Adviser Custody Rule is 

designed to provide additional safeguards for investors against the possibility of theft or misappropriation by investment 

advisers who are registered with the SEC.

8 See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963).

9

 See In the Matter of Michael A. Callaway, File. No. 3-13356 (Jan. 30, 2009).
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IV. Conclusion

In sharing the focus areas for the Multi-Branch Adviser Initiative, OCIE hopes to encourage advisers to reflect 

upon their own practices, policies, and procedures in these areas and to promote improvements in investment 

adviser compliance programs.

This Risk Alert is intended to highlight for firms risks and issues that the staff has identified. In addition, this Risk Alert 

describes risks that firms may consider to (i) assess their supervisory, compliance, and/or other risk management systems 

related to these risks, and (ii) make any changes, as may be appropriate, to address or strengthen such systems. Other risk 

besides those described in this Risk Alert may be appropriate to consider, and some may not be applicable 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.