Mutual Funds and ETFs

Mutual Funds and ETFs


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Full video transcript available below:

Hello and thank you for joining today's webinar Best Practices to Master an SEC Exam. Our presenters today join us from Northpoint Compliance, Victoria Hogan and Colleen Montemarano.

Okay, great. Okay, so thank you so mutual funds and ETFs, this falls under the retail investor category simply because often times retail investors, the way that they get investments to the market is not directly through stock funds but through mutual funds and ETFs. And typically, I guess there's this thought that mutual funds are more diversified and as are ETFs, so they have lower risk. But really this comes to lately is the mutual funds and ETFs also have risks that we need to make sure are disclosed to our clients.


Within the 2018 Exam Priorities, the section on mutual funds and ETFs was pretty short, but I think it really gave us a good roadmap, if you're a CCO as to what you should be asking your portfolio managers that are making investments in mutual funds and ETFs for clients or recommendations in making sure that they are including ... and we'll go up to the bullet points in just a second, but they are including all of these elements in their initial decision to make an investment in a mutual fund or ETF for a client and they continuing to make and monitoring that investment. So, I would start by asking your portfolio managers and the folks making investment decisions.


When you're investing in mutual funds, in the process of reviewing that manager of the thought, "are you looking at the performance and liquidity terms? Are you looking at the experience of the investment adviser? Are you looking at if there's any hard-to-value securities?" So, hopefully the answer is yes and then the next question is, "Okay, well, how are you documenting that?" because that should be documented. And if the question is, "well, we somewhat look at it, but maybe is not as formal," here being that this is an SEC or an OCEI exam priority, I would make sure that still gives you the initial investment decision that those risk are looked at, and also, if they do exist [inaudible 00:42:11] your clients.


Also, if you're investing in a custom-built index, so the question is for your portfolio managers, "are you looking at conflicts of interest?" Which mean, ourselves and also the index provider. And then, again, same thing with ETF, ask your portfolio managers, "have you considered the trading volume? How that could affect liquidity?" And then looking at that to see if your disclosure is related to investment risk with the ETF. So, here my takeaway, when I was reading the 2018 priorities, it just really gave us an opportunity to make sure that when we're looking at our compliance program, we're looking at an area of portfolio management and how investment decisions are made, that these factors are being considered and if they are true factors into risk are being disclosed in the ADV. 


This webinar was co-hosted with Victoria Hogan and Colleen Montemarano of

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