Advisers

FYI: FAQs Issued Addressing Form CRS

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FYI: The first FAQs addressing Form CRS have been posted on the SEC’s website, addressing 4 topics: Format requirements for firms offering multiple services. Meeting the “machine readability” formatting requirement. Delivery requirements for existing clients/customers. Pooled vehicle investors – are they “retail investors”? One can expect that additional FAQs will be added to this list as firms gain more experience drafting Form CRS and additional questions are posed to the SEC Staff. Form CRS FAQs: https://www.sec.gov/investment/form-crs-faq. *  *  *

Advisers

FYI: Rules Proposed to Govern Use of Derivatives by RICs and BDCs

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FYI: Today the SEC voted to propose a series of new rules and amendments aimed at better regulating the use of derivatives by business development companies and registered investment companies, including mutual funds, exchange-traded funds (ETFs) and closed-end funds. The major components of the proposal are: Proposed new Investment Company Act Rule 18f-4, which would allow a fund to enter into derivatives and certain other transactions, notwithstanding the restrictions under Sections 18 and 61 of the Investment Company Act, provided that the fund complies with the conditions of the rule, including the adoption of a derivatives risk management program and […]

Advisers

FYI: ‘Dear CFO’ Letters Revived

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FYI: Starting with a letter issued on November 22, 2019, the Chief Accountant’s Office of the Division of Investment Management has revived its practice of issuing ‘Dear CFO’ letters from time to time, addressing matters relating to accounting, auditing, financial reporting and related disclosure for investment companies and BDCs. Numerous ‘Dear CFO’ letters were issued in the period from November 1994 to February 2001, but since then accounting matters have been addressed by the SEC Staff via other means, such as IM Guidance Updates, IM Information Updates, Accounting and Disclosure Information publications and IM Staff Issues of Interest, as well […]

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. * * *

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 […]

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 […]