Lest you think the SEC is not serious about holding individuals personally liable, here is an excerpt from a recent speech by Chairperson White: Individual Liability: Any discussion of strong enforcement tools must include a discussion of our priority of … Continued
No one wants to be a victim of a cybersecurity attack. But if you are an investment adviser and your clients’ personally identifiable information (PII) is hacked, you will be a victim and, in the view of the regulators, you might just … Continued
The SEC recently conducted examinations of around 20 SEC-registered investment advisers and investment companies that outsourced their CCOs to unaffiliated third parties. The general takeaway is that outsourced CCOs sometimes were not knowledgeable about a firm’s business practices, did not have access to … Continued
On August 25, 2015, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) released proposed anti-money laundering (“AML”) regulations that would require investment advisers registered or required to register with the SEC to have written AML programs meeting certain minimum requirements … Continued
Recently an adviser asked if they still needed to keep trade confirmations since they were retained by their broker-dealer/custodian. I think an adviser must retain them in their books and records for three reasons: 1. The repository at the BD … Continued
Busy schedules and deadlines can make shortcuts seem appealing. But the work we complete and how we complete it matters.
Yesterday, for whatever reason, I was rummaging around a few adviser web sites and came across one that included a testimonial. How did I know it was a testimonial? Was it my compliance expertise? My familiarity with the nuances of … Continued
The SEC has made it clear time and time again that the first step toward developing strong written policies and procedures is for an investment adviser to identify all areas that create risk exposure or the potential for risk exposure. Accordingly, … Continued
The initial questionnaire should accurately identify the client’s circumstances, investment objectives, risk tolerance, and all investment restrictions and preferences. Review of the questionnaire responses is a great time for the advisor to assess the client’s investment sophistication and to provide … Continued
The purpose of this Compliance Alert is to familiarize you with key insider trading concepts and issues. What is Insider Trading? The buying or selling of a security, in breach of a fiduciary duty or other relationship of trust and … Continued
As most of you know (and dread) the SEC sends out a document request list about two weeks prior to the on-site portion of the audit. However, be prepared to provide other documents on the fly. For example, examiners have … Continued
The SEC Office of Compliance Inspections and Examinations encourages advisory firms to define what a material compliance event is for their organization. While there as many definitions as there are advisory firms, a common definition of a “Material Compliance Event” is … Continued
One part of Item 12 (Brokerage) in the ADV Part 2A that advisers tend to miss when disclosing their soft dollar activities: You must describe the types of products and services you or any of your related persons acquired with … Continued
Such arrangements may include, among others, undisclosed solicitation arrangements. It is not uncommon to have a discussion with a client about whether they can pay a certain person for client referrals. Often they cannot because the person is not qualified … Continued
The 2 most common registration deficiencies: Inconsistencies in responses to similar items found on Part 1 and Part 2 of Form ADV (e.g., Item 8C of Part 1A indicates that the adviser does not have investment discretion, but the adviser … Continued
The enforcement staff gives credit to registrants that demonstrate effective compliance programs and a genuine commitment to ethical principles. Advisers should focus on persuading the enforcement staff of the quality and depth of a firm’s compliance culture and its record … Continued
The SEC has been engaging in shorter, more streamlined “presence exams” for newly registered advisers. The following five focus areas make up the bulk of these exams: Marketing; Portfolio management; Conflicts of interest; Safety of client assets; and Valuation. Streamlined … Continued
Assets under management is a defined term on Form ADV. Don’t exaggerate to stay registered with the SEC. The SEC has enforcement actions underway against multiple SEC-registered advisory firms that puffed up their assets.
Make sure you can verify your performance numbers and that you maintain all records necessary to substantiate the performance. The SEC is hunting down performance outliers. If you are posting numbers that wildly outperforms a benchmark the SEC will take … Continued
Conflicts of interest in allocating investment opportunities among your advisory clients can arise in a multitude of situations, including: Accounts subject to performance fees versus those that do not pay performance fees; Accounts that pay a higher investment management fee … Continued