Advisers

FYI: DOL Looks to Reconsider Fiduciary Rule in 2019

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FYI: The DOL’s latest regulatory agenda indicates that it is “considering regulatory options” in light of the Fifth Circuit court case that vacated the DOL Fiduciary Rule earlier this year. The agenda lists the timetable for a “Final Rule” on this as September 2019. Notably, September 2019 is also listed on the SEC’s current regulatory agenda as the timetable for “Final Action” on proposed Regulation Best Interest (as well as proposed Form CRS and the proposed Investment Adviser Standard of Conduct Interpretative Release). This coincidence of dates between the DOL and SEC may indicate that the agencies are attempting to […]

Advisers

FYI: No-Action Letter Allows Fund Boards to Rely on CCO Certifications

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FYI: The SEC’s Division of Investment Management has issued a no-action letter indicating that fund Boards can rely on quarterly written CCO certifications that transactions entered into in reliance on certain Exemptive Rules were effected in compliance with fund procedures, instead of the Boards having to make that determination themselves. According to the no-action letter, this is consistent with the Commission’s approach in adopting Rule 38a-1 and allows Boards to avoid duplicating certain functions commonly performed by or under the supervision of the CCO. Although this does not change the Board’s oversight role with respect to a fund’s overall compliance […]

Advisers

FYI: Charges Brought for Cybersecurity Failures

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FYI: The SEC has brought settled charges against Voya Financial Advisors, Inc. (VFA), a dual-registered BD/IA, for cybersecurity failures. Here are some salient facts, according to the SEC’s order: • VFA gave its independent contractor representatives access to its brokerage and advisory customer information through a proprietary web portal through which the reps accessed customer information and managed their brokerage accounts. The reps generally used their own IT equipment and their own networks to access the portal. Voya’s service call centers serviced support calls from VFA’s customers and VFA’s reps. o Over a 6-day period, imposters impersonating VFA reps were […]

Advisers

FYI: Info on SCSD Initiative

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FYI: So far, we don’t know much about the outcome of the SEC’s Share Class Selection Disclosure (SCSD) Initiative, which allowed advisers to voluntarily self-report if they failed to make required disclosures relating to the selection of mutual fund share classes that paid the adviser or its affiliates 12b-1 fees when a lower-cost share class for the same fund was available to the adviser’s clients. For example, we don’t know how many firms self-reported by the June 12, 2018 deadline, or how many funds, clients or fees were involved in self-reported cases. However, in a speech this week, Co-Director of […]

Advisers

FYI: Latest Disclosure Enforcement Action – More of the Old and Some New

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FYI: The SEC has settled a disclosure enforcement action against an adviser (dual-registered as a BD) that contained some old and some new aspects. The adviser was charged with failing to disclose compensation it received and the attendant conflicts of interest arising under a marketing services agreement with a third-party BD that served as custodian of certain client accounts (“Custodian A”). According to the SEC’s settlement order, Custodian A paid the adviser two basis points of the value of assets the adviser’s clients maintained at Custodian A, creating an incentive for the adviser to recommend Custodian A to clients over […]

Advisers

FYI: Proxy Voting No-Action Letters Withdrawn

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FYI: The SEC is considering a number of fundamental issues regarding proxy voting, including the “plumbing” of the proxy voting process as well as proxy voting by institutions, advisers and other investors. Reflecting long-standing concerns about a wide variety of issues, including the voting influence being concentrated in and wielded by proxy advisory firms, the SEC has taken recent actions worth noting: • The SEC has announced it will be hosting a Roundtable on the Proxy Voting Process to hear from a variety of stakeholders (issuers, investors, other market participants) about whether and how the SEC’s proxy voting rules should […]

Advisers

FYI: Report on State of IA Industry Released

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FYI: The IAA has released its 2018 Evolution Revolution report profiling the investment advisory industry. This annual report is always worth a read for anyone interested in continued changes to the advisory industry. This year’s report includes information based on the new detail called for by Form ADV in a number of areas, such as: • number of clients, • amount of RAUM attributable to non-U.S. clients, • advisers that participate in wrap fee programs, • social media accounts, • advisers with multiple offices, • custodians, • “umbrella registrations” (private fund advisers operating as a single advisory business), and • […]

Advisers

FYI: Computer Model Errors – Continued Risk to Advisers

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FYI: The SEC has brought and settled another case based on charges that should all advisers should heed as investing increasingly relies on computer algorithms, quantitative models and other automated procedures that affect client portfolios. This most recent case was brought against various AEGON/Transamerica-affiliated advisory entities for fraud and various other violations resulting from errors in quantitative investment models that, according to the SEC’s settlement order, were developed solely by an inexperienced, junior analyst, contained numerous errors, and did not work as promised. The SEC also found that when the firms learned about the errors, they stopped using the models […]

Advisers

FYI: Best Execution Risk Alert

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FYI: Yesterday OCIE issued a Risk Alert listing examples of many of the most common best execution (BE) deficiencies encountered in IA examinations, including: • Not performing BE reviews. IAs are expected to demonstrate through documentation that they periodically and systematically evaluate the performance of the BDs used to execute client transactions. • Not considering materially relevant factors during BE reviews. Qualitative factors (responsiveness, financial responsibility, etc.) as well as quantitative factors (commission rate, etc.) should be considered. As relevant, input from the IA’s traders and portfolio managers should be solicited. • Not seeking comparisons from other BDs. Comparisons should […]

Advisers

FYI: 2018 Compliance Testing Survey

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FYI: The IAA has released the results of its 2018 compliance testing survey. Areas surveyed this year included: • Fees & Expenses • Investment Mandates • Data Analytics • Custody • Best Execution • Soft Dollars • Advertising/Social Media • Individual Clients • Cryptocurrency Trend updates were also included in these areas: • Cybersecurity • Pay-to-Play • Form ADV • “Hot” Compliance Topics For the 5th year in a row, cybersecurity was named by survey respondents (81%) as the hottest compliance topic. And despite the recent focus on crypto, virtually all respondents said they do not trade in crypto-assets. A […]