The next priority we're discussing is the reTIRE initiative. The reTIRE initiative focuses on investment advisors with retail clients and clients saving for retirement. This is certainly not a new focus. It was the subject of an SEC risk alert in June 2015. It just continues to be an area that the SEC is really focusing on.

One of the things that they're focusing on with this initiative is the suitability of investment recommendations. This year the SEC stated that they'll be looking particularly at the recommendation of their [inaudible 00:37:50] insurance products and target dates.

You want to make sure that you're documenting your clients risk tolerance and investment goals to be able to show that investment recommendations are suitable. The compliance department as said under other topics should be periodically conducting reviews of suitability.

You also want to be sure that any additional fees or conflicts of interest surrounding specific products such as variable annuities where a broker if somebody's also a registered rep may be receiving a commission. You want to be sure that those specific fees and the conflicts of interest are fully disclosed.

The SEC has also stated it will be focusing on cross transactions, especially with respect to fixed income. If your firm executes principal cross transactions which if you're not familiar is a trade from a proprietary account of the firm to a client, or agency cross transactions which is where the advisor acts as broker for a trade between two client accounts, you want to be sure that you're acting accordance with section 2063 and also rule 2063-2 of the Advisors Act.

Here, there are specific disclosure and consent requirements for both principal and agency cross transactions. Even if you're an advisor that's not acting as a broker in cross transactions, if you are crossing trades between client accounts you have fiduciary duty of full and fair disclosure of all material facts. As a best practice, you should disclose to clients any cross transactions at or before execution.

If you are doing cross transactions, you should also have written policies and procedures regarding the execution of cross transactions. I recommend that these policies include some ways of ensuring that transaction is in the best interest of all the clients involved, and also you should require FCCO approval of any cross transactions.

Then next is that you want to ensure all material conflicts of interest are fully disclosed. We're bringing this up once again. This is something I think we've talked about during almost every topic, but that is because full and accurate disclosure is so important. Advisors focusing on client saving for retirement should be particularly careful to ensure that any incentive to recommend one product over another such as commissions or 12B1 fees are fully disclosed.

You also want to be cautious that marketing materials are accurate and not misleading. The SEC advertising rules prohibit advertisements which contain any untrue statement of material fact or which is otherwise false or misleading. We also refer to this rule as the kind of the catch-all provision of the advertising regulations because there're many statements that can fall into the category of false or misleading. It can be really gray. One of the things to consider when determining if a statement is misleading is your audience. You need to remember that you are dealing with retail investors who are saving for retirement, so they do not have the same knowledge as institutional investors.

Another thing is you want to be sure to include proper disclosures in your marketing material. Sometimes failing to have disclosure can make that something that would not misleading turn out to be misleading, so be sure to make sure there're proper disclosures on your marketing materials.

Now I will turn it back to Vicky for the next slide.

Thank you, Colleen. The next priority I'll discuss has to do with public pension advisors. This was also in the 2016 exam priorities, and it remains a priority in 2017. This falls under senior and retirement investors and it's a hot topic, especially, obviously, with the aging population.

When you become an advisor to a public pension there are definitely conflicts of interest if the person that hired you and you are providing that person with something of value that could influence their decision to hire your firm as an advisor. There have been interestingly there were 10 firms got caught up. I don't know if the audience read about this, but 10 firms got caught up with respect to the pay-to-play rules.

Oftentimes even after an investment was made in a private equity fund one of the covered associates may not even work at the firm made a donation of $500, $1,000, to somebody that can influence the decision making of how that pension is managed. It resulted in 10 cases where the firms were fined. I think it ranged between $35,000, not quite up to $100,000, but the firms were fined. They got an SEC alert about it. Certainly, you want to make sure that you have strong pay-to-play policies if you are providing advisory services to government clients and pension plans.

There has been more egregious violations of the pay-to-play rule which are very interesting to read. Even if it's just a $500 donation slips through your compliance policies and procedures are not good enough to catch it you could be caught up just like these other 10 firms got caught up with the violations of the political donations rule.

Something we do when we do audits or reviewing firms and something that you should do is we look to ... there're different websites where you can type in your supervised person's names and it will tell you if there've been any political contributions in the past. This can alert you to any political donations that haven't been already disclosed to the firm. Also we are seeing a move, a shift, for our clients, our investment advisors where they require all employees to require preapproval for making any contribution including the spouse's contribution just so as to not run afoul of these pay-to-play rules.

It's good, again I spoke about certifications before, it's good to get a certification with respect to any political donations of new employees and also requiring that preapproval and getting a certification as well on an annual basis.

The same thing goes with undisclosed gifts and entertainment practices. Similar to political donations, you would want to make sure that if somebody at your firm or if the firm itself is going to provide anything of value to somebody in a pension that it gets preapproved. That really is the best practice. Really, best practice even better than that would be to ban it completely altogether, and then make sure you're that you're getting certifications from employees initially on an annual basis that they have not provided any gifts or entertainment to any government clients or pensions unless it's been disclosed or preapproved.

Something that you can do where our clients have found unreported gifts and entertainment has been through email reviews, actually, where tickets have been provided or other items of value have been provided to folks at different clients including pensions. That's one way that you can test your program is by having the certifications, reviewing the political donations websites that I spoke about before, and then also oversight of employee emails as well along with training and even using this case of 10 firms getting caught up with the pay-to-play rule as an example of how serious it could be by just having a technical violation of this rule.

Now I'll turn it to Colleen to discuss senior investors, a little bit more about senior investors.

Okay. Thank you, Vicky. Senior investors are those who are 65 and older. This initiative is different than the retired initiative I discussed earlier which focuses on clients saving for retirement. The senior initiative is more focused on folks who are at or very near retirement. The SEC has said their looking at how firms manage their interaction with senior investors including the ability to identify financial exploitation of seniors.

It's always important to document client meetings and phone calls. With senior investors it can be especially important because you want to be sure that you document their financial needs to show that investment recommendations are suitable, but you also want to recommendation in case some in the future they don't recall a conversation or they forget a decision that you made in a meeting and later begin to question it.

Another thing is that as investors age their children or other family members may become more involved in their finances. This can be a really tricky area because you need to be sure to protect your client's privacy. You don't want to discuss client accounts with family members unless you have documented permission or the family member has a power of attorney.

However, there's also the fact that there might become a point in time where you feel a client can't handle their own account. For that reason, it is a good idea to discuss powers of attorney and estate planning while your clients are still in good health.

One of the things I've seen some of my clients do which I think is good is to encourage that older clients bring their children into a meeting where you all sit down together. This is a great way to help facilitate discussions and plan for the future so when the time does come where a client can't handle their own account you know and you have put in place how to handle the account.

Another area the SEC has stated examiners will be looking at is the supervisory program and controls relating to products and services directed at senior investors. You should make sure that you establish policies and procedures regarding the suitability or recommendations for all of your clients. I think we've said that under several other topics.

I haven't seen firms with specific policies regarding suitability of products and services directed at seniors. However, there has been a more recent focus on the unique risks associated with senior investors. You have investors that have probably accumulated some wealth over time, but they also have a great need for that money and will be withdrawing it.

This has been a topic in the broker dealer area for a while. Actually, in 2015 the SEC and FINRA cductd the national senior investor initiative which is a coordinated series of exams of broker dealers focusing on senior investors. What we are starting to see now is an increased focus on this area in the investment advisor space.

While I'm not seeing specific policies regarding suitability for senior investors when you are conducting reviews of suitability for a client, senior clients, you do want to make sure that you're looking for signs that they could be taken advantage of such as are they in a higher risk investment which may have a higher fee and also might be riskier than is suitable for someone that is retired, or is there frequent trading in their account, especially if the manager is earning a commission. You want to be sure that their accounts are being managed suitably.

Another concern with seniors is final exploitation by someone outside of the investment advisor. The NASAA has a senior investor resource center and also initiative which is called Serve Our Seniors. They actually have a great website serveourseniors.org. On here is a lot of resources for both investment advisors and information you could share with your clients to help them make sure they understand products and services that you're recommending.

One of the recommendations on this site is to establish policies for reporting potential financial exploitation of seniors including signs of what to look for and who you should report these signs to. This is something that I have not seen being done among my clients. It could be prudent to consider if you have a large number of senior clients, then we might see a trend towards this in the future, so I would definitely consider adopting policies here.

One thing that I am seeing advisors already doing is providing employees with training on how to stop financial exploitation. For example, if the client suddenly has an unexpected request to send a large sum of money to a family member or a new friend and also how to look for signs of diminished capacity such as are they repeatedly asking the same questions, or are they calling to you to inquire about something they had just called about the day before. You want to make sure that employees know what to look for and also who at the firm to report any signs of potential financial exploitation or diminished capacity too.