Adviser Charged with Failing to Conduct Annual Compliance Reviews

October 5, 2016

The SEC brought an enforcement action against Dupree Financial Group, LLC, an investment adviser located in Lexington, Kentucky, for failing to conduct annual compliance reviews from 2010 through 2014.  Dupree Financial primarily provides retirement investment advice to about 600 individual clients with assets under management of approximately $156 million.

Rule 206(4)-7 under the Advisers Act prohibits a registered investment adviser from providing investment advice to clients unless the adviser completes annual reviews of the adequacy of its compliance policies and procedures and the effectiveness of their implementation.

The SEC stated that Dupree Financial’s policies and procedures required its chief compliance officer (CCO) to conduct a documented review of its compliance policies and procedures each year.

The staff of the Commission’s Office of Compliance Inspections and Examinations (OCIE) commenced an examination of Dupree Financial in August 2014 and stated that as of August 2014, Dupree Financial had never completed an annual compliance review. OCIE further found that from 2010 through 2013, Dupree Financial retained external compliance consultants to assist in developing its compliance program. Despite those efforts, OCIE reported that the firm did not complete an annual compliance review during the relevant period.

The SEC noted that CCO had no prior investment adviser compliance experience and no background in compliance. After being appointed as Dupree Financial’s CCO, OCIE found that the employee’s administrative duties continued to occupy a significant portion of her time. Although Dupree and the CCO discussed the possibility of the CCO seeking compliance education, the CCO never obtained any formal training concerning the compliance requirements of the Advisers Act.

Dupree Financial’s was fined $25,000.

Click Dupree Financial Group, Investment Advisers Act Rel. No. 4546 (October 5, 2016) to access the enforcement action.