Advisers

FYI: Fiduciary Duty Chapter Posted

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FYI: The October 2019 edition of my PLI treatise chapter on “An Investment Adviser’s Fiduciary Duty” is now posted for viewing or download at the following links. Chapter: http://www.40actlawyer.com/wp-content/uploads/2019/11/Fiduciary_Duty_PLI_10-2019.pdf. Related Appendix (sample training module): http://www.40actlawyer.com/wp-content/uploads/2019/11/Appendix_to_FidDuty_Chapter_10-2019.pdf. * * *

Funds

FYI: Risk Alert on Investment Company Compliance

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FYI: OCIE has issued a Risk Alert highlighting compliance deficiencies and weaknesses observed during examinations of nearly 300 investment companies, as well as specific issues observed during examinations of money market funds (MMFs) and target date funds (TDFs). Investment Companies Generally The most often cited deficiencies and weaknesses observed over a 2-year period included: Fund compliance rule, in particular designing a compliance program without taking into account the nature of the fund’s business, not following or enforcing policies and procedures, inadequate service provider oversight, and annual reviews not performed or not addressing (or not adequately documenting) a review of the […]

Advisers

FYI: SEC Enforcement Report for 2019

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FYI: The SEC’s Division of Enforcement has released its Annual Report on enforcement activity during Fiscal Year 2019 (the year ended September 30, 2019). Much of the report pertains to enforcement activity in areas outside of the financial services industry. However, interesting points summarized in the report involving or impacting financial services include: The report recaps the 2 waves of settled cases brought under the mutual fund Share Class Selection Disclosure Initiative, where a total of 95 IA firms voluntarily self-reported and were ordered to return a total of over $135 million to primarily retail investors. Standardized settlement terms were […]

Advisers

FYI: Amendments Proposed to IA Advertising and Cash Solicitation Rules

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FYI: Today the SEC voted to propose amendments to the Advisers Act Advertising Rule (Rule 206(4)-1) and the Cash Solicitation Rule (Rule 206(4)-3). Both of these rules have been largely unchanged for decades and the proposals are aimed at updating the rules and incorporating no-action and other interpretive positions that IAs have been relying on for years governing these areas. A summary Fact Sheet included the following among the many interesting proposals: Advertising Rule Jettisoning the oddly technical, outdated prohibitions in the current Advertising Rule, the proposed Rule amendments would take a principles-based approach, including a broad definition of “advertisement” […]

Advisers

FYI: Another 36(b) Victory for Adviser

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FYI: A September 30, 2019 ruling from the US District Court for the Southern District of NY resulted in a victory for the adviser against Section 36(b) excessive fee claims brought by plaintiffs. The court’s 111-page opinion thoroughly analyzed the six ‘Gartenberg’ factors affirmed applicable to 36(b) cases by the Supreme Court in Jones v. Harris (2010). Two of the factors had been dismissed from the case in a partial summary judgment granted to the adviser in 2018. The other four factors were considered by the court in a bench trial, after which the court concluded that only one factor […]

Advisers

FYI: FAQs Address Adviser Compensation and Conflicts Disclosure

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FYI: Perhaps under the banner of better late than never, the Division of Investment Management yesterday posted FAQs that are a MUST READ for all advisers, addressing expectations and practices surrounding adviser compensation and the related conflicts that, according to the FAQs, are not being disclosed appropriately by some advisers. The FAQs help to pull together various seemingly disparate threads that have arisen recently but are rarely (or never) addressed in an integrated way, such as: the Share Class Selection Disclosure Initiative, which focuses on 12b-1 compensation, conflicts and disclosures in the selection of mutual fund share classes, other recent […]

Funds

FYI: Funds Warned About Inaccurate Performance and Fee Disclosures

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FYI: The Division of Investment Management has warned funds to verify the accuracy of their performance and fee disclosures prior to filing them with the SEC and providing them to investors. The warning was prompted by several disclosure issues observed by the staff, including funds: failing to reflect sales loads in the fund’s average annual returns table. making other performance errors in prospectuses, such as showing negative performance as positive and transposing performance of share classes or multiple indexes. incorrectly showing net expenses that exceed gross expenses in the expense table, resulting from the inaccurate reflection of fee waiver recoupments […]

Advisers

FYI: More Advisers Charged with Share Class Selection Disclosure Violations

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FYI: We learned more today about the SEC’s intended handling of advisory firms both inside and outside the ambit of its 2018 Share Class Selection Disclosure Initiative. Today the SEC announced settlements with an additional 16 advisers that self-reported under the Initiative, who together were ordered to pay disgorgement and prejudgment interest totaling nearly $10 million. These 16 advisers were in addition to the 79 self-reporting advisers who settled earlier this year under the Initiative for an aggregate of over $125 million in disgorgement and prejudgment interest. So far, none of the firms that have self-reported have been ordered to […]

Advisers

FYI: States Sue to Invalidate Reg BI

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FYI: Today, eight jurisdictions – NY, CA, CT, DE, DC, ME, NM and OR – filed suit in the US District Court for the Southern District of New York asking the court (among other things) to vacate Regulation Best Interest and enjoin the SEC from implementing or enforcing it. The introductory statement in the plaintiffs’ Complaint summarizes their substantive concerns: “This lawsuit challenges a final regulation [Reg BI] issued by the Securities and Exchange Commission that undermines critical consumer protections for retail investors, increases confusion about the standards of conduct that apply when investors receive recommendations and advice from broker-dealers […]

Advisers

FYI: Significant Disclosure Guidance

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FYI: Three significant items have been posted on the SEC’s website explaining certain disclosure requirements for BDs, IAs and funds: 1) A small entity compliance guide has been posted addressing requirements for BDs and IAs under newly adopted Form CRS. The guide provides a helpful summary highlighting the drafting, filing and updating requirements for the form. While it is a summary intended to assist small firms, the guide provides a helpful, succinct explanation of requirements applicable to all BDs and IAs using Form CRS. Form CRS Relationship Summary and Amendments to Form ADV — A Small Entity Compliance Guide: https://www.sec.gov/info/smallbus/secg/form-crs-relationship-summary. […]