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 […]

Funds

FYI: New SEC Fund Disclosure Website

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FYI: The Division of Investment Management has launched a new page on the SEC’s website aggregating and simplifying access to certain disclosure information relating to funds. Currently, the page includes 3 main sections: 1. Fund Disclosure at a Glance – This section is aimed at the general public as well as industry participants, explaining briefly what the Disclosure Review and Accounting Office (DRAO) does and how to contact them with questions about fund disclosure information. 2. Accounting and Disclosure Information (ADI) – This section is intended to aid practitioners and others who are interested in the law and interpretations concerning […]

Advisers

FYI: SEC Rule Changes Made Today

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FYI: Today, the SEC acted on several new requirements, among them: 1. iXBRL – The SEC approved rule changes requiring various SEC forms and related data to be filed with the Commission in “Inline” XBRL structured data format. This includes investment company risk/return disclosure that appears in fund registration statements/prospectuses. Funds are already required to file this data in XBRL format, which permits the data to be machine-readable and utilized in an “interactive” manner. However, funds are currently required to file the XBRL data in a separate registration statement or related filing made for that specific purpose within 15 days […]

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 […]