The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) periodically publishes Risk Alerts to highlight compliance problems discovered during examinations. On October 31, 2018, OCIE circulated a Risk Alert that analyzes compliance issues pertaining to Rule 206(4)-3 under the Investment Advisers Act of 1940, otherwise known as the Cash Solicitation Rule. Generally, investment advisers required to be registered under the Act are prohibited from paying a cash fee, directly or indirectly, to any person who solicits clients for a Registered
Read MoreSame SEC Document Production List
We are seeing quite an uptick in Advisors undergoing regulatory exams. Therefore, as a service to you we are providing the following information in regard to regulatory exams. The SEC’s Office of Compliance, Inspections and Examinations (OCIE) is responsible for administering exams. Generally, the initial notification of an exam will reference that the staff of the U.S. Securities and Exchange Commission is conducting an examination of risk factors pursuant to Section 204 of the Investment Advisers Act of 1940 (the
Read MoreSupervision of Investment Adviser Representatives
Registered Investment Advisers (RIAs) owe a duty to supervise persons associated with the firm with respect to activities performed on their behalf. In recent deficiencies letters, RIAs have been criticized for failing to adequately supervise their supervised persons, including, Investment Adviser Representatives (IARs). RIAs must implement written supervisory procedures to govern the conduct of supervised persons. A supervised person is any partner, officer, director, or employee of an RIA who provides investment advice on behalf of the firm. We have attached
Read MoreRIAs Must Make Good on Fee Refunds and Fully Disclose Their Financial Condition
On July 20, 2018, the SEC announced the settlement of charges against a Beverly Hills-based Registered Investment Adviser (RIA) and its majority owner, because the firm improperly refused to refund unearned advisory fees to 63 clients who left the firm. The RIA also made material misstatements in written disclosures to clients regarding the firm’s financial condition. According to the SEC’s order instituting administrative and cease-and-desist proceedings, the RIA and its owner withheld $131,000 in prepaid unearned advisory fees. The 63
Read MoreSEC Publishes Most Frequent Best Execution Deficiencies Found by Examiners
On July 11, 2018, the Office of Compliance Inspections and Examinations (OCIE) released a risk alert dealing with the most frequent best execution deficiencies identified during investment adviser exams. The risk alert can help Registered Investment Advisers (RIAs) improve their best execution policies and procedures and avoid potential problems during their own examinations. The duty to seek best execution is an important component of an RIA’s fiduciary obligation. Investment advisers must attempt to obtain the best qualitative execution for the
Read MoreFrequent Advisory Fee and Expense Compliance Issues
On April 12, 2018, the Office of Compliance Inspections and Examinations (“OCIE”) issued a National Exam Program risk alert in which it outlined the most frequent advisory fee and expense compliance issues identified in deficiency letters sent to SEC-registered investment advisers. To read the full risk alert, click here. The six most frequent areas of concern noted were: Fee-Billing Based on Incorrect Account Valuations – for example, using a different metric or process than was specified in the client agreement or
Read MoreRIAs Breach Their Fiduciary Duty with Improper Share Class Selection
On April 6, 2018, the SEC ordered three Registered Investment Advisers (RIAs) to pay $12 million to clients harmed by the firms’ breach of their fiduciary obligations. The RIAs had generated millions of dollars in improper fees by selecting higher-cost mutual fund shares for clients, even though less expensive ones were available. In total, the three RIAs were ordered to pay nearly $15 million. The SEC’s orders stated that the RIAs failed to disclose conflicts of interest and violated their
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