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. […]

Advisers

FYI: Risk Alert on IA Principal and Agency Cross Trading

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FYI: OCIE issued a Risk Alert today identifying the most frequent compliance issues found in investment adviser examinations relating to principal and agency cross trading. The Risk Alert strikes a familiar theme by listing deficiencies in almost every key area of Advisers Act Section 206(3) (which governs IA principal and cross trading) and related Rule 206(3)-2 (which IAs can choose to follow when executing certain agency cross trades), such as: • failing to recognize transactions as principal transactions; • failing to make the required disclosures; • failing to obtain required client consents (or failing to obtain them in a timely […]

Advisers

FYI: SEC Issues Proxy Voting Guidance for Advisers

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FYI: At its open meeting today, the SEC voted (3 to 2, Commissioners Jackson and Lee voting ‘no’) to publish guidance regarding the proxy voting responsibilities of investment advisers under Advisers Act Rule 206(4)-6 and related registration and reporting forms under the Investment Company Act. It is worth noting that the SEC has been discussing proxy voting issues from many angles for quite some time. Importantly, last fall, the Division of Investment Management withdrew two previously issued no-action letters — Egan-Jones Proxy Services (May 27, 2004) and Institutional Shareholder Services, Inc. (Sept. 15, 2004) — addressing advisers’ use of proxy […]

Advisers

FYI: Risk Alert Issued Addressing Supervision Initiative

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FYI: OCIE has issued a Risk Alert addressing the results of its Supervision Initiative, which in 2017 assessed the oversight practices of more than 50 SEC-registered IAs that previously employed, or currently employ, individuals with a history of disciplinary events. The Initiative focused on advisers’ compliance programs and supervisory oversight, disclosures and conflicts of interest on a firm-wide basis, although particular emphasis was placed on previously-disciplined individuals. According to the Risk Alert, nearly all of the examined IAs received deficiency letters, the vast majority of which related to compliance issues, but many related to disclosure issues, including undisclosed conflicts of […]

Advisers

FYI: Adviser Breached Fiduciary Duty to Client with Senile Dementia

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FYI: The SEC has brought a settled enforcement action against three respondents — an adviser, its principal and its founder — for breach of fiduciary duty to a client with senile dementia. According to the SEC’s order, the respondents recommended to their client that she change her trust agreement in a manner that would benefit the respondents. Recommending this change was viewed as entailing a financial conflict of interest for the respondents, yet the respondents sought to obtain the client’s consent to the amendment when they knew or should have known that she could not provide truly informed consent because […]

Advisers

FYI: Mutual Fund Waiver Initiative Results Announced by FINRA

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FYI: FINRA announced (press release: http://www.finra.org/newsroom/2019/finra-announces-final-results-mutual-fund-waiver-initiative) that it has settled with 56 broker-dealer firms in its Mutual Fund Waiver Initiative, obtaining a total of $89 million in restitution for nearly 110,000 charitable and retirement accounts. The Mutual Fund Waiver Initiative was a multi-year initiative started in 2015 with settlements with firms that self-reported failures to consider applicable mutual fund share class sales charge waivers for charitable and retirement plan accounts. This was followed by additional self-reported failures, which led FINRA to launch a sweep exam looking at this area. In the end, FINRA sanctioned 56 firms for failing to waive […]

Funds

FYI: FAQs Posted for Funds Reporting on New Forms N-PORT, N-CEN

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FYI: The Division of Investment Management has posted updated FAQs with guidance on investment company reports required under the Investment Company Reporting Modernization Rules adopted in October 2016 and revised in December 2017 and January 2019. The FAQs address questions in the following categories: • Compliance Dates and General Filing Obligations • Form N-PORT • Regulation S-X • Form N-CEN. Not surprisingly, the FAQs reveal that funds may be running into unanticipated technical and interpretive issues in preparing their reports stemming from, for example, delays of the compliance dates, differences in methodologies (such as in valuation), funds/classes that have terminated, […]

Advisers

FYI: SEC Adopts Reg BI and Related Interpretations

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FYI: Moments ago, the SEC voted 3 to 1 on all items (Commissioner Jackson voting against; the fifth seat on the Commission remaining vacant at this time) to adopt Reg BI and related interpretations in final form. A careful reading of the lengthy Adopting Releases and interpretations will be required to get a full understanding of the rules as adopted, including changes made since the proposal made in 2018. However, from oral presentations made by SEC Staff at the SEC’s open meeting today, the basic approach and rationale presented in the 2018 proposal appears to have survived largely intact. These […]

Advisers

FYI: The Senior Safe Act and Immunity

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FYI: The SEC, NASAA and FINRA have jointly issued a Fact Sheet about The Senior Safe Act enacted by Congress last year, to help raise awareness of the Act and to help explain how the Act’s immunity provisions work. In principal part, the Act provides qualified immunity to certain individuals and financial institutions — which could include IAs and BDs — from liability in any civil or administrative proceeding for reporting a case of potential exploitation of a senior citizen to a covered agency. The multiple-agency Fact Sheet and press release can be accessed here: https://www.sec.gov/news/press-release/2019-75. The Senior Safe Act […]