SEC Prioritizing Improved Adviser Transition Planning

At a conference held at One World Trade Center, New York, SEC Chair Mary Jo White discussed the Commission’s focus on the impact on investors of a market stress event or when an investment adviser is no longer able to serve its clients. She noted, for example, the challenges an adviser may face in serving its clients’ needs while also transferring its asset management services to another firm during an adviser’s dissolution or the departure of key personnel.

“To better understand this risk, it is important to recognize that the risks associated with winding down an investment adviser are different than those associated with other kinds of financial firms,” White explained. “Client assets are not the assets of an adviser, and advisers routinely exit the market without significant market impact; those exits, however, are not without challenges, and those challenges may differ depending on the adviser’s clients.”

White said if there are restrictions on investors’ ability to access of move assets away from an adviser or, more generally, de facto limitations imposed by illiquid assets or market conditions, a clear transition plan for that adviser could benefit investors and the market. The SEC staff is developing a recommendation to require investment advisers to create such transition plans to prepare for a major disruption in their business.

The staff is also looking into ways to implement the new requirements for annual stress testing by large investment advisers and large funds, as required by the Dodd-Frank Act. They are evaluating what protocols would be appropriate for investment advisers and investment companies, while also considering how to tailor these requirements for asset management and different types of firms.

The complete speech delivered on December 11, 2014, is available here.