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 […]

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 […]

Advisers

FYI: Reg BI Set for Vote at SEC’s June 5, 2019 Meeting

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FYI: The agenda for the SEC’s open meeting on Wednesday, June 5, 2019, includes consideration of whether to adopt: • Reg. BI • Form CRS • Interpretive Guidance Addressing IA Standard of Conduct. Interestingly, the agenda also lists an item that was not specifically included in the suite of proposals originally bundled together with Reg. BI, namely, whether the Commission should publish an interpretation of the “solely incidental” prong of Section 202(a)(11)(C) of the Investment Advisers Act of 1940. Section 202(a)(11)(C) is the so-called ‘broker-dealer exception’ from the Advisers Act, which excludes from the definition of ‘investment adviser’ any BD […]

Advisers

FYI: Risk Alert Addressing Network Stored Information

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FYI: OCIE issued a Risk Alert today addressing security weaknesses found in recent IA and BD examinations relating to the storage of customer and firm information on internal and external networks (including hosted cloud storage). The Risk Alert pointed out that the majority of network storage solutions offer encryption, password protection and other security features designed to prevent unauthorized access, but firms did not always use the available security features. Three particular areas of concern were listed: • Misconfigured network storage solutions. • Inadequate oversight of vendor-provided network storage solutions. • Insufficient data classification policies and procedures. On the positive […]

Advisers

FYI: Is the SEC Wearing Its “Reasonableness Pants”?

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FYI: In a recent speech, SEC Commissioner Hester Peirce questioned whether the SEC was wearing its “reasonableness pants”* when it undertook the recent Share Class Selection Disclosure Initiative, which earlier this year resulted in 79 settled enforcement actions against advisers that voluntarily self-reported having selected for clients mutual fund share classes that carried a 12b-1 fee when a lower-cost share class for the same fund was available to the clients, ostensibly without adequate disclosure of the attendant conflicts of interest. While acknowledging that the aggregation of all those cases together helped to preserve precious SEC staff resources, Commissioner Peirce does […]

Advisers

FYI: Resources on Protecting Senior Investors

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FYI: The SEC’s Office of the Investor Advocate has issued a paper entitled “How the SEC Works to Protect Senior Investors,” describing what the SEC is doing to protect senior investors, especially in the areas of investor education, regulatory examinations and enforcement. The paper is well worth a read by anyone interested in compliance relating to seniors, as it summarizes work in the area not only by the SEC, but also by FINRA (for example, FINRA Rule 2165 on Financial Exploitation of Specified Adults) and the states (for example, the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, […]

Advisers

FYI: Appellate Court Decides Robare Disclosure Case

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FYI: This week, the DC Circuit Court of Appeals issued its opinion in the Robare case, originally brought as an SEC administrative proceeding against an investment adviser and two principals, alleging misleading disclosure regarding a revenue sharing arrangement. While the adviser’s disclosure about the revenue sharing arrangement evolved over time, this case in part raised a question the SEC has now raised in a number of cases, that is, whether disclosure is misleading if it states an arrangement “may” result in certain payments to an adviser when in fact the arrangement is already in place and has already resulted in […]