Advisers

FYI: Chairman’s Testimony – Areas of Focus

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FYI: This week, the SEC Chairman testified before a Congressional oversight committee, giving a wide-ranging report on areas of focus for the Commission and recent successes and frustrations. His remarks emphasized that as the Commission pursues its tripartite mission—to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation—he believes the Commission should focus on Main Street investors. Specifically in the area of examinations, the Chairman reported that in FY 2017, OCIE completed nearly 2,900 examinations, an increase of more than 450 examinations from the prior year, covering all types of registered entities (BDs, IAs, funds, municipal advisors, […]

Advisers

FYI: Custody Rule FAQs Update

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FYI: This week, the SEC posted two new questions on its Advisers Act custody rule FAQs, both centered on the same issue. According to the questions, an adviser that does not have a copy of a client’s custodial agreement, and does not know, or have reason to know whether the agreement would authorize the adviser to instruct the custodian to disburse, or transfer, funds or securities, need not comply with the custody rule with respect to that client’s account if that authorization would be the sole basis for custody. This is welcomed relief for advisers in the wake of the […]

Funds

FYI: More Fund Report Delivery Options Available

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FYI: Yesterday, the SEC voted to take 3 actions as part of its on-going initiative to improve and modernize the design, delivery and content of information provided to fund investors. 1) The Commission adopted new Investment Company Act Rule 30e-3 (proposed originally in May 2015) that allows certain funds an optional method to transmit shareholder reports to investors. This is as close as the SEC has come to allowing a “notice and access” delivery method for fund reports, where funds may make the materials publicly accessible at a specified website address, free of charge, if they send investors a paper […]

Advisers

FYI: Recent Developments Concerning Financial Exploitation of Senior Investors

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FYI: More developments have occurred in the area of protecting senior/vulnerable adults from financial abuse or exploitation: 1) On June 1, 2018, the SEC issued a no-action letter to the ICI permitting mutual funds (or their transfer agents) to temporarily delay for more than the statutory 7 days usually required for redemption, the disbursement of redemption proceeds from the mutual fund account of a “Specified Adult” held directly with the transfer agent based on a reasonable belief that financial exploitation has occurred, is occurring, has been attempted, or will be attempted. The ICI’s incoming letter states that this no-action relief […]

Advisers

FYI: FAQs Issued on SCSD Initiative

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FYI: The SEC Division of Enforcement has issued FAQs addressing questions that have come up about the Share Class Selection Disclosure (SCSD) Initiative since it was announced earlier this year. (See my FYI blog post dated February 12, 2018, for more details on the Initiative.) In short, the Initiative encourages advisers to self-report to the SEC if the adviser failed to make required disclosures relating to its selection of mutual fund share classes that paid the adviser or its affiliates a 12b-1 fee when a lower-cost share class for the same fund was available. Among other things, the FAQs confirm […]

Advisers

FYI: It’s Soup! SEC Proposes “Fiduciary” Rule (or Not)

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FYI: Late today, the SEC voted (4 to 1, with Commissioner Stein voting ‘no’) to propose new rules and requirements that would apply to investment advisers and broker-dealers when serving retail investors. This proposal comes after nearly two decades of considering this issue, close to 8 years after the Dodd-Frank Act specifically authorized the SEC to adopt a fiduciary rule and some 2 years after the DOL beat the SEC to the punch and adopted its own DOL Fiduciary Rule applicable to retirement advice. (Note that the DOL rule is in limbo now, having been vacated by a U.S. Court […]

Advisers

FYI: SEC National Compliance Outreach for IA/IC

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FYI: Yesterday the SEC held its 2018 Compliance Outreach Program National Seminar for investment advisers and investment company senior officers. Among the many interesting points discussed by program panelists were the following, which I had not heard before (or at least not in this way): • Adviser Advertising. In the near or mid-term, the SEC staff is “looking at” a number of items, including the adviser advertising rule (Rule 206(4)-1) (in particular the “anti-testimonial” provision) and the “cash solicitation” rule (Rule 206(4)-3). Of course, this does not mean that changes will be made regarding these rules. These items are reportedly […]

Advisers

FYI: Adviser Fee Risk Alert

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FYI: The SEC’s OCIE has issued a Risk Alert addressing the most frequent advisory fee and expense compliance issues identified in examinations of advisers, specifically highlighting the following problems: • Incorrect valuations basing fee calculations, such as using a different valuation method or process than disclosed or required by agreement. • Billing in advance or with improper frequency, inconsistent with disclosures or agreements. • Applying incorrect fee rate, including wrong rate, double-billing or charging a performance fee in improper situations. • Omitting rebates and applying discounts incorrectly, such as not aggregating accounts when required for discount purposes, not reducing the […]

Advisers

FYI: Here We Go Again – SEC Fiduciary Rule?

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FYI: The SEC has scheduled an open meeting for Wednesday, April 18, 2018, to consider the following: • whether to propose new and amended rules and forms to require registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors. • whether to propose a rule to establish a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer. • whether to propose a Commission interpretation of the standard of conduct for investment advisers. […]

Advisers

FYI: 3 New Share Class Selection Cases, 1 Including ADV Item 2 “Material Change” Violation

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FYI: The SEC has brought and settled 3 more cases against investment advisers for fiduciary, disclosure and compliance violations resulting from their mutual fund share class selection practices. Although the circumstances varied somewhat among the cases, the adviser in all 3 was charged for having invested clients in various fund share classes that paid the adviser or its affiliates 12b-1 fees when lower-cost classes were available, and for having failed to provide adequate disclosure about the conflicts of interest arising from those payments. These are the first share class enforcement cases made public since February 2018, when the SEC’s Enforcement […]