A Registered Investment Adviser’s (RIA) and its Investment Adviser Representatives’ (IARs) obligations as fiduciaries are quite extensive. Even seasoned Investment Advisers may not fully understand their fiduciary obligations. Fiduciary duty encompasses much more than just the duty to be honest and avoid negligence. Advisers also owe an affirmative duty of loyalty, which means RIAs and IARs must always put their clients’ interests ahead of their own. The fiduciary duty owed by RIAs and IARs includes all of the following obligations:
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2021 SEC Exam Priorities
On March 3, 2021, the SEC’s Division of Examinations (Division) published its examination priorities for the year. These priorities are the driving force behind the Division’s examinations but are not exhaustive. Examiners may focus on other issues during an examination. The Division, which was previously called the Office of Compliance Inspections and Examinations, circulates its yearly priorities to alert Registered Investment Advisers (RIAs) and broker-dealers regarding the risks that firms should address. The Division’s goal is to prevent harm to
Read MoreNew York Regulatory Update
The New York State Department of Law (the “Department”) recently adopted new regulations that went into effect on February 1, 2021. These new regulations govern the registration and examination requirements for investment adviser representatives domiciled in New York, or doing business with New York clients. Previously, New York did not require registration of state and SEC investment adviser representatives. The Department is allowing for an implementation period for current New York domiciled representatives to apply for registration by August 31,
Read MoreWhat Can RIAs Learn About the SEC’s Ponzi Scheme Charges?
On February 4, 2021, the SEC charged three individuals and their affiliated entities with running an alleged Ponzi scheme that raised over $1.7 billion from securities issued by an asset management firm and Registered Investment Adviser (RIA). Approximately 4,000 of the 17,000 retail investors defrauded were seniors. According to the SEC’s complaint, the defendants told investors that they would receive distributions from the profits of the portfolio companies. In fact, many of the payments came from the investors’ own funds.
Read MoreRIAs Can Expect Big Changes with SEC’s New Marketing Rule
Guest post by Ara Jabrayan On December 22, 2020, the SEC enacted the new Marketing Rule, which will have an enormous impact on Registered Investment Advisers (RIAs). The new rule will replace the prior Advertising Rule, as well as the Cash Solicitation Rule. The SEC also amended Form ADV and the Books and Records Rule to implement changes resulting from the Marketing Rule. The SEC enacted the new Marketing Rule to protect investors from misleading advertisements and solicitations, while accommodating
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SEC Risk Alert Gives Advice to Private Fund Advisers
On June 23, 2020, the SEC published a Risk Alert, which summarized compliance issues discovered during hundreds of examinations of investment advisers that manage private equity funds or hedge funds. Examiners from the SEC’s Office of Compliance Inspections and Examinations (OCIE) made a number of observations that can help private fund advisers to revise and improve their policies and procedures. Advisers can also use OCIE’s findings to avoid committing similar mistakes at their own firms. The Risk Alert is a
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SEC Issues Risk Alert Dealing with Regulation S-P Privacy Notices & Safeguard Policies
On April 16, 2019, the SEC’s Office of Compliance Inspections and Examinations (OCIE) published a Risk Alert dealing with Regulation S-P, which is the Commission’s primary rule governing privacy notices and the safeguarding policies of Registered Investment Advisers (RIAs), as well as broker-dealers. The Risk Alert guidance is derived from recent examinations of RIAs and broker-dealers and is designed to help them develop compliant privacy and opt-out notices to clients who are individuals (“customers”). The Risk Alert will also
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Fiduciary Duty Goes Well Beyond Share Class Selection
Investment advisers may have noticed the SEC’s recent Share Class Selection Disclosure Initiative and thought they had nothing to learn from the 79 enforcement actions. The reality is that even investment advisers who are not affiliated with a broker-dealer can learn valuable lessons from these enforcement actions. Lessons learned from Share Class Selection Disclosure Initiative On March 11, 2019, the SEC announced that its Share Class Selection Disclosure Initiative had returned more than $125 million to investors. The initiative was
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SEC Announces Its 2019 Examination Priorities
The SEC’s Office of Compliance Inspections and Examinations (OCIE) publishes annually its examination priorities to promote transparency and provide insights into the areas it believes pose a heightened risk to investors or to the integrity of the U.S. capital markets. OCIE’s priorities are designed to support the SEC’s mission, which is to protect investors and facilitate capital formation, as well as to maintain fair, orderly, and efficient markets. On December 20, 2018, OCIE announced its 2019 examination priorities. Both the
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OCIE Reveals Cash Solicitation Rule Compliance Issues
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
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