Compliance Solutions for Investment Advisers

Monthly Archives: September 2011

SEC Charges Adviser in Soft Dollar Fraud

The SEC charged an investment advisor with fraud for lying to clients about how brokerage commission rebates, or “soft dollars,” were being used and producing phony documents to cover up the fraud during an SEC examination. The SEC alleges that Kurt Hovan of Hovan Capital Management misappropriated more than $178,000 he claimed to be using

SEC Head Honcho Backs SRO for Advisers

A proposal to turn over the supervision of financial advisers to a self-regulatory organization (SRO) gained the support of SEC Chairperson Mary Schapiro. The SEC has the resources to conduct annual examinations of only 9% of U.S. registered advisers, who number nearly 12,000, she said. “Unless there is sufficient funding for the SEC to do

SEC Postpones Fiduciary Rules

The SEC (and the Department of Labor) postponed efforts to extend a fiduciary standard to more financial advisers. “It’s extremely unlikely that there will be a rule this year,” an SEC official says.

Compliance Alert! Data Security

Dear Compliance Professional, The protection of a client’s non-public personal information is one of the most important tasks entrusted to an investment adviser. Unfortunately, it is also one of the most vexing issues confronting compliance professionals. Any time an adviser stores non-public personal information on a computer that is connected to the Internet, transmits such

Changes to ADV Part 1 – Item 5

Item 5 is the part of the ADV 1 that requests information about an investment adviser’s business, including information about employees, clients and advisory activities. Again, these changes are part of the SEC’s goal to collect more and more information about advisers in the hopes of correctly assessing their risk profile. The key amendments to

Social Media

Following a recent survey of state-registered investment advisers, the Massachusetts Division of Securities has determined that additional regulatory guidance concerning the use of social media is necessary. The Survey required responses to a variety of questions as to each investment adviser’s use of social media (including Facebook, LinkedIn, Twitter, as well as other media), the

Changes to ADV 1 – “Mid-Sized” Advisers

The revised Instructions to Item 2 in the ADV Part 1 requires certain “mid-sized” advisers (e.g., those advisers with between $25 million and $100 million in regulatory AUM) to remain registered with the SEC. The Instructions state that a  mid-sized adviser must register (or remain registered) with the SEC if they meet at least one

Some Inside Scoop – Part 2

I spoke with a senior state regulator who told me point blank that the best thing I can tell clients who need to transition from SEC to state registration due to the increased AUM threshold, is start early.  She said if you know you need to transition – e.g., you are nowhere close to the

Changes to ADV Part 1 – “Large Advisers”

My previous post discussed the new range of choices in Item 2 for SEC registration. While most of the options were already familiar, the “large adviser” and “mid-sized” adviser options were new. This post discusses the attendant changes to the ADV 1 Instructions regarding the “large adviser” option for SEC registration (the next post will

Changes to ADV Part 1 – Item 2

Item 2 is the section of Form ADV Part 1 that determines whether an adviser is eligible to register (or remain registered) with the SEC. To implement the new prohibition on registration for mid-sized advisers (e.g., those advisers with between $25 million and $100 million in regulatory AUM), Item 2.A. has been amended to reflect

Compliance Alert! Changes to ADV 1

Dear Compliance Professional, The adoption by the SEC of a series of rules intended to effectuate certain provisions of the Dodd-Frank Wall Street Reform Act has ushered in many significant changes for investment advisers. Some of those changes (e.g., the increased AUM threshold for SEC registration, the different scenarios for SEC registration, the new method

Some Inside Scoop

Spoke at length with a state regulator the other day. His exact quote: “Registration transition is going to be complete chaos.”

Transitioning from SEC to State – Helpful Tip #5

GET STARTED EARLY The state process can be quite protracted under ordinary circumstances. There will be nothing ordinary when thousands of transitioning advisers begin to overwhelm limited state resources.

Transitioning from SEC to State – Helpful Tip #4

NET CAPITAL REQUIREMENTS Determine if any net capital or net worth requirements apply. Usually, advisers with custody (even if it is only custody as a result of direct fee deduction) have to meet certain net capital requirements. Some states will allow advisers to obtain a surety bond in lieu of net capital.

Transitioning from SEC to State – Helpful Tip #3

DOCUMENTS Determine what documents must be filed as part of the state registration process, review and update those documents if you already have them and/or draft new documents if necessary. States have very specific rules about what should be in your documents – this is especially true of your advisory agreement. Make sure it conforms

Transitioning from SEC to State – Helpful Tip #2

DETERMINE STATES OF REGISTRATION One of things you can do now to help ease your transition from SEC registration to registration with one or more states is determine the state(s) in which you must register. Seems obvious, huh? Just wait. While a good rule of thumb is that you will need to register as a

Transitioning from SEC to State – Helpful Tip #1

REGISTER FIRST – WITHDRAW SECOND The most important thing to remember about transitioning from SEC to state registration (other than to actually do it if you have less than $90 million in AUM) is do not – repeat, do not – withdraw from your SEC registration until you have an effective registration with at least

Good Riddance SEC? Not so Fast.

We now know that at the $90 million asset under management threshold, approximately 3,300 SEC-registered advisers will be required to transition to registration with one or more states. Quite a few of these transitioning SEC advisers are positively giddy with joy at the thought of their imminent departure from the tyranny of the SEC. Each

New AUM Threshold for SEC Registration

Recently enacted SEC rules have clarified the assets under management requirement for SEC registration. While $100 million in AUM is the figure that has caught everybody’s attention, the actual workings of the new threshold are a bit more complicated. If you are currently SEC registered you only need at least $90 million in AUM as

Compliance Alert! Disaster Recovery

Dear Compliance Professional, I hope this finds all of you and your families up and down the East Coast safe and sound. Earthquakes and hurricanes – two phenomena not usually associated with this neck of the woods (or Colorado, for that matter). As I sit here typing in semi-darkness – courtesy of Hurricane Irene –

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