Future SEC Initiatives: IA/BD Study, Books and Records, New Part II, Soft-Dollar and Hedge Funds

October 25, 2006

In a recent speech, Andrew J. Donohue, Director of the SEC’s Division of Investment Management, outlined several future initiatives for the Division of Investment Management. These initiatives include the SEC’s Investment Adviser/Broker-Dealer study which aims to analyze current industry and regulatory practices and also examine the levels of protection afforded to investors under both the Securities Exchange Act and the Investment Advisers Act. The next initiative Mr. Donohue discussed is a potential reformulation of the SEC’s books and records requirements for investment advisors. This should be welcome news as hopefully the SEC will factor the many technological changes that have occurred over the last 40 years and establish practical books and records requirements.

Mr. Donohue also mentioned the new Form ADV Part II. A new Part II is something advisors have been hearing about for over six years now. In fact, the SEC must repropose the changes to the current Part II which is currently being worked upon by the Division of Investment Management.

In regard to soft dollars, portfolio trading practices, and best execution, Mr. Donohue stated the Division has set a goal “to provide guidance that would enable fund boards and others to have meaningful dialogue with fund managers on soft dollar practices, as well as the adviser’s philosophy with respect to brokerage and soft dollar practices.”

Finally, according to the Mr. Donohue, the SEC’s attempt to regulate advisors to hedge funds is not going away any time soon. Mr. Donohue reiterated Chairman Cox’s intention “to recommend that the SEC promulgate a new anti-fraud rule under the Investment Advisers Act that would have the effect of “looking through” a hedge fund to its investors.” The SEC has essentially gone back to the drawing board and is trying to find methods that will enable a new rule to withstand judicial scrutiny.

To read the text of Mr. Donohue’s entire speech, click here.

Posted by Bryan Hill
Labels: Form ADV, Record Keeping