The SEC has been watching wrap fee programs for quite a while. From 2017-19, the SEC’s annual examination priorities named wrap fee programs as putting investors at risk. The SEC’s Division of Examinations (Division) released a July 21, 2021 Risk Alert with guidance from examiners during its Wrap Fee Initiative. The Risk Alert, “Observations from Examinations of Investment Advisers Managing Client Accounts That Participate In Wrap Fee Programs,” contains compliance guidance for Registered Investment Advisers (RIAs) that recommend wrap fee
Read MoreSEC Charges 21 RIAs for Form CRS Filing and Delivery Failures
On July 26, 2021, the SEC announced that 21 Registered Investment Advisers (RIAs) settled charges alleging that they failed to file and deliver their client relationship summaries, known as Form CRS, in a timely manner. Form CRS is also frequently referred to as Form ADV Part 3. Six broker-dealers were also accused of not filing or delivering their client relationship summaries. On June 5, 2019, the SEC adopted Form CRS and required SEC-registered investment advisers and SEC-registered broker-dealers to file
Read MoreFiduciary Duty Is Broader Than Many Think
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:
Read More
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
Read More
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
Read More
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
Read More
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
Read More