Is Your RIA Supervising the Gifts and Political Contributions of Its Investment Adviser Reps - Learn About the SEC's Proposed Pay-to-Play Rule
The U.S. Securities and Exchange Commission ("SEC") recently proposed new SEC Rule 206(4)-5 under the Investment Advisers Act of 1940. According to the SEC, the proposed rule is intended to curtail "pay to play" practices by registered investment advisers that seek to manage money for state and local governments.
This SEC proposal relates to money managed by state and local governments under public programs such as public pension plans for government employees, retirement plans in which teachers and other government employees can invest monies, and 529 plans that allow families to invest money for college. The state and local governments often hire and pay outside registered investment advisers to provide advisory services such as direct investment management or recommendations about which investments to make. The outside registered investment advisers often are selected by one or more trustees who have been appointed by elected officials. The term "pay to play" has been coined because the selection of such trustees can be undermined if elected officials ask investment advisers for political contributions or if elected officials otherwise make it understood that only investment advisers who make contributions will be selected to provide advisory services to the public programs subject to the control of the elected official.
Pay to play practices have been recognized as a significant problem. During the past several years, the SEC has brought enforcement actions in New York, New Mexico, and Connecticut, and likewise, there also have been criminal prosecutions in New York, New Mexico, Illinois, Ohio, Connecticut, and Florida over pay to play schemes.
If you are interested in learning more about recent actions related to registered investment advisers involved in "pay to play" schemes and the SEC's proposed rule to limit "pay to play" practices, please purchase your seat for only $59.95 to our upcoming webinar, "Supervising Gifts and Political Contributions," on Wednesday, October 28, 2009 from 12:00 - 1:00 p.m. CST.
This SEC proposal relates to money managed by state and local governments under public programs such as public pension plans for government employees, retirement plans in which teachers and other government employees can invest monies, and 529 plans that allow families to invest money for college. The state and local governments often hire and pay outside registered investment advisers to provide advisory services such as direct investment management or recommendations about which investments to make. The outside registered investment advisers often are selected by one or more trustees who have been appointed by elected officials. The term "pay to play" has been coined because the selection of such trustees can be undermined if elected officials ask investment advisers for political contributions or if elected officials otherwise make it understood that only investment advisers who make contributions will be selected to provide advisory services to the public programs subject to the control of the elected official.
Pay to play practices have been recognized as a significant problem. During the past several years, the SEC has brought enforcement actions in New York, New Mexico, and Connecticut, and likewise, there also have been criminal prosecutions in New York, New Mexico, Illinois, Ohio, Connecticut, and Florida over pay to play schemes.
If you are interested in learning more about recent actions related to registered investment advisers involved in "pay to play" schemes and the SEC's proposed rule to limit "pay to play" practices, please purchase your seat for only $59.95 to our upcoming webinar, "Supervising Gifts and Political Contributions," on Wednesday, October 28, 2009 from 12:00 - 1:00 p.m. CST.
Labels: Code of Ethics, Political Contributions, Webinar
posted by bhill at 8:41 PM
The CFP Board's Revised Standards of Professional Conduct Impose New Requirements on CFP® Certificants Who Provide Financial Planning
The Certified Financial Planner ("CFP") Board of Standards, Inc. has issued updated Code of Ethics and Professional Responsibility and Rules of Conduct, which are scheduled to become effective July 1, 2008. With these updates, all CFP certificants will be held to a higher duty of care standard and will be required to place the interest of their clients ahead of their own at all times. Additionally, the updates make distinctions for CFP® certificants who provide financial planning services.
For example, the duty of care for CFP® certificants who provide financial planning services has been raised from the duty to "act in the interest of the client" to the "duty of care of a fiduciary." See Code of Ethics and Professional Responsibility, Rules of Conduct, Rule 1.4. The CFP Board defines fiduciary as "One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client." Secondly, the updated standards require additional disclosures to both a client or prospective client, if the services to be provided include financial planning or material elements of the financial planning process. [See Rules 1.2 and 2.2.] Also, if services provided by a CFP® certificant include financial planning or material elements of the financial planning process, the certificant is required to have a written agreement with the client to govern the financial planning services. [See Rule 1.3.]
In the February 20, 2008, release, CFP Board's Revised Standards of Professional Conduct: Frequently Asked Questions, the CFP Board's Disciplinary and Ethics Commission ("Commission") provided guidelines to help CFP® certificants determine when their activities are financial planning or material elements of the financial planning process. According to the Commission, some of the primary criteria for determining "material elements" are: 1) The client's understanding and intent in engaging the certificant; 2) The degree to which multiple financial planning subject areas are involved; 3) The comprehensiveness of data gathering; and 4) The breadth and depth of recommendations. The CFP Board has stated that if a certificant is "unsure if a particular service or client relationship rises to the level of financial planning", then the certificant should "embrace the CFP Board's fiduciary standard and provide services in ways they believe are in the best interest of the client." Supra, Question 8, p.6.
Rule 2.2 lists the written disclosures required to be made to clients or prospective clients when CFP® certificants are involved in engagements that involve financial planning or material elements of the financial planning process. These disclosures include:
1) An accurate and understandable description of the compensation arrangements being offered; 2) A general summary of likely conflicts of interest between the client and the certificant, the certificant's employer or any affiliates or third parties; 3) Any information about the certificant or the certificant's employer that could reasonably be expected to materially affect the client's decision to engage the certificant or that the client might reasonably want to know in establishing the scope and nature of the relationship; and 4) Contact information for the certificant and if applicable, the certificant's employer.
In addition to the written disclosures required by Rule 2.2, Rule 1.2 outlines additional disclosure obligations to clients and prospective clients when a certificant's services include financial planning or material elements of the financial planning process. These additional disclosures include: 1) The obligations and responsibilities of each party, 2) Any compensation that may be related to the client agreement, 3) Any factors that determine costs, 4) The terms under which proprietary products may be offered, and 5) The terms under which other entities will be used to meet any services outlined in the agreement. Additionally, the certificant is instructed by Rule 1.2 to "encourage the prospective client or client to review the information and offer to answer any questions that the prospective client or client may have." See CFP Board's Revised Standards of Professional Conduct: Frequently Asked Questions, Question 12, p. 8.
The updated disclosure standards differ from the existing standards. For example, disclosures are now required to be made to prospective clients as well as existing clients. Disclosures must include material information that is relevant to the professional relationship, including compensation and conflicts of interest, as well as the CFP® certificant's credentials and business affiliations. Disclosures must include direct or indirect compensation to both the CFP® certificant and/or the certificant's employer. Also, in place of the standard for the certificant to advise clients that they can request updated information about compensation and conflicts of interest on an annual basis, the new standards impose a requirement that the certificant make timely disclosures to the client if previously disclosed information becomes outdated. Supra, Question 13, p.8. See also Rules 1.2 and 2.2.
It is a new requirement that for financial planning services, the certificant or certificant's employer shall enter into a written agreement which identifies 1) The parties to the agreement, 2) The date of the agreement and its duration, 3) How and on what terms each party can terminate the agreement, and 4) The services to be provided as part of the agreement. See Rule 1.3. The CFP Board has explained that "the written agreement requirement was designed to help ensure that CFP® certificants and their clients define clearly the services involved in a specific business relationship and help reduce disputes based on misunderstandings of those services." CFP Board's Revised Standards of Professional Conduct: Frequently Asked Questions, Question 14, p. 8.
The CFP Board has explained that its enforcement of the ethical standards for CFP® professionals is intended to instill confidence in the public that they can trust a CFP® practitioner to help them realize their life goals through proper management of financial resources. See CFP Board Strengthens Its Ethics Enforcement Policy, Message from David G. Strege, CFP®, CFA®, Chair of CFP Board's Board of Directors, p.3.
For further information regarding the new CFP standards, you may directly review the CFP Code of Ethics and Professional Responsibility, the CFP Rules of Conduct, the CFP Financial Planning Practice Standards, the CFP Disciplinary Rules and Procedures, and the CFP Board of Standards, Inc. release dated February 20, 2008, CFP Board's Revised Standards of Professional Conduct: Frequently Asked Questions. If you are an investment advisor, RIA Compliance Consultants can assist you in complying with the new disclosure and agreement provisions of the CFP Board's Revised Standards of Professional Conduct. Please contact us if you would like to discuss the services that we can provide.
For example, the duty of care for CFP® certificants who provide financial planning services has been raised from the duty to "act in the interest of the client" to the "duty of care of a fiduciary." See Code of Ethics and Professional Responsibility, Rules of Conduct, Rule 1.4. The CFP Board defines fiduciary as "One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client." Secondly, the updated standards require additional disclosures to both a client or prospective client, if the services to be provided include financial planning or material elements of the financial planning process. [See Rules 1.2 and 2.2.] Also, if services provided by a CFP® certificant include financial planning or material elements of the financial planning process, the certificant is required to have a written agreement with the client to govern the financial planning services. [See Rule 1.3.]
In the February 20, 2008, release, CFP Board's Revised Standards of Professional Conduct: Frequently Asked Questions, the CFP Board's Disciplinary and Ethics Commission ("Commission") provided guidelines to help CFP® certificants determine when their activities are financial planning or material elements of the financial planning process. According to the Commission, some of the primary criteria for determining "material elements" are: 1) The client's understanding and intent in engaging the certificant; 2) The degree to which multiple financial planning subject areas are involved; 3) The comprehensiveness of data gathering; and 4) The breadth and depth of recommendations. The CFP Board has stated that if a certificant is "unsure if a particular service or client relationship rises to the level of financial planning", then the certificant should "embrace the CFP Board's fiduciary standard and provide services in ways they believe are in the best interest of the client." Supra, Question 8, p.6.
Rule 2.2 lists the written disclosures required to be made to clients or prospective clients when CFP® certificants are involved in engagements that involve financial planning or material elements of the financial planning process. These disclosures include:
1) An accurate and understandable description of the compensation arrangements being offered; 2) A general summary of likely conflicts of interest between the client and the certificant, the certificant's employer or any affiliates or third parties; 3) Any information about the certificant or the certificant's employer that could reasonably be expected to materially affect the client's decision to engage the certificant or that the client might reasonably want to know in establishing the scope and nature of the relationship; and 4) Contact information for the certificant and if applicable, the certificant's employer.
In addition to the written disclosures required by Rule 2.2, Rule 1.2 outlines additional disclosure obligations to clients and prospective clients when a certificant's services include financial planning or material elements of the financial planning process. These additional disclosures include: 1) The obligations and responsibilities of each party, 2) Any compensation that may be related to the client agreement, 3) Any factors that determine costs, 4) The terms under which proprietary products may be offered, and 5) The terms under which other entities will be used to meet any services outlined in the agreement. Additionally, the certificant is instructed by Rule 1.2 to "encourage the prospective client or client to review the information and offer to answer any questions that the prospective client or client may have." See CFP Board's Revised Standards of Professional Conduct: Frequently Asked Questions, Question 12, p. 8.
The updated disclosure standards differ from the existing standards. For example, disclosures are now required to be made to prospective clients as well as existing clients. Disclosures must include material information that is relevant to the professional relationship, including compensation and conflicts of interest, as well as the CFP® certificant's credentials and business affiliations. Disclosures must include direct or indirect compensation to both the CFP® certificant and/or the certificant's employer. Also, in place of the standard for the certificant to advise clients that they can request updated information about compensation and conflicts of interest on an annual basis, the new standards impose a requirement that the certificant make timely disclosures to the client if previously disclosed information becomes outdated. Supra, Question 13, p.8. See also Rules 1.2 and 2.2.
It is a new requirement that for financial planning services, the certificant or certificant's employer shall enter into a written agreement which identifies 1) The parties to the agreement, 2) The date of the agreement and its duration, 3) How and on what terms each party can terminate the agreement, and 4) The services to be provided as part of the agreement. See Rule 1.3. The CFP Board has explained that "the written agreement requirement was designed to help ensure that CFP® certificants and their clients define clearly the services involved in a specific business relationship and help reduce disputes based on misunderstandings of those services." CFP Board's Revised Standards of Professional Conduct: Frequently Asked Questions, Question 14, p. 8.
The CFP Board has explained that its enforcement of the ethical standards for CFP® professionals is intended to instill confidence in the public that they can trust a CFP® practitioner to help them realize their life goals through proper management of financial resources. See CFP Board Strengthens Its Ethics Enforcement Policy, Message from David G. Strege, CFP®, CFA®, Chair of CFP Board's Board of Directors, p.3.
For further information regarding the new CFP standards, you may directly review the CFP Code of Ethics and Professional Responsibility, the CFP Rules of Conduct, the CFP Financial Planning Practice Standards, the CFP Disciplinary Rules and Procedures, and the CFP Board of Standards, Inc. release dated February 20, 2008, CFP Board's Revised Standards of Professional Conduct: Frequently Asked Questions. If you are an investment advisor, RIA Compliance Consultants can assist you in complying with the new disclosure and agreement provisions of the CFP Board's Revised Standards of Professional Conduct. Please contact us if you would like to discuss the services that we can provide.
Labels: CFP, Code of Ethics
posted by bhill at 10:41 PM
California Proposes Amendments to Rules under the Corporate Securities Law of 1968
Earlier this month, the California Department of Corporations announced proposed changes to rules regulating investment advisers registered in California. According to the release, the objective in proposing the amendments is to increase uniformity with the model rules suggested by the North American Securities Administrators Association (NASAA), rules already in effect in other states, and rules established by the Securities and Exchange Commission (SEC). California is giving the public an opportunity to comment on the proposed changes. The time period for comment ends on October 30, 2007.
The proposed rules will have an impact on registered investment advisors in California, and all registered investment advisor firms doing business in California should take time to read the various releases and the text of the proposed rules. We feel the following are some of the more important changes proposed.
RIA Compliance Consultants, Inc. can help your firm comply with these proposed changes. Contact us to find out more about our written compliance manual and code of ethics drafting and reviewing services.
The proposed rules will have an impact on registered investment advisors in California, and all registered investment advisor firms doing business in California should take time to read the various releases and the text of the proposed rules. We feel the following are some of the more important changes proposed.
- Requirement to establish and maintain written procedures designed to supervise employees and ensure their compliance with securities laws.
- Incorporation of the principles governing performance-based advertising set forth in the 1996 SEC No-Action letter involving Clover Capital Management.
- Requirement to provide all clients a written disclosure document containing the same information in Form ADV Part II. While we suggest all registered investment advisors provide a disclosure document to clients, apparently this has not been a requirement in California.
- Amendment to the definition of custody and the procedures regarding custody. This rule will mirror the NASAA Model Rule for custody.
- Rule requiring the implementation of codes of ethics. The rule will copy the same requirements set forth under the SEC’s codes of ethics rule (Rule 204A-1 under the Advisers Act).
- Changes to “largely mirror” Rule 206(4)-3 of the Advisers Act which sets forth requirements that must be followed when fees are paid to solicitors.
- The adoption and implementation of a business continuity plan.
RIA Compliance Consultants, Inc. can help your firm comply with these proposed changes. Contact us to find out more about our written compliance manual and code of ethics drafting and reviewing services.
Labels: Advertising, Code of Ethics, Custody, Form ADV, Solicitors
posted by bhill at 3:00 PM
Code of Ethics Training and Acknowledgment
In our series "Year-End Compliance Tips," we are next focusing on investment advisor codes of ethics.
The SEC and many state securities regulators require investment advisor firms to create and implement a code of ethics. All SEC firms must require all employees to read and agree to abide by the firm's original code of ethics and any amendments made to the code. RIA Compliance Consultants recommends requiring an annual acknowledgment of the code of ethics. In addition, advisor firms should also consider implementing an annual training program focused on the code of ethics. As quoted from Rule 204A-1 of the Advisors Act, an SEC advisor's code of ethics must include, at a minimum:
(1) A standard (or standards) of business conduct that you require of your supervised persons, which standard must reflect your fiduciary obligations and those of your supervised persons;
(2) Provisions requiring your supervised persons to comply with applicable Federal securities laws;
(3) Provisions that require all of your access persons to report, and you to review, their personal securities transactions and holdings periodically as provided below;
(4) Provisions requiring supervised persons to report any violations of your code of ethics promptly to your chief compliance officer or, provided your chief compliance officer also receives reports of all violations, to other persons you designate in your code of ethics; and
(5) Provisions requiring you to provide each of your supervised persons with a copy of your code of ethics and any amendments, and requiring your supervised persons to provide you with a written acknowledgment or their receipt of the code and any amendments.
The code of ethics needs to be reviewed by the firm on an annual basis and, if needed, updated. It is important to document any changes to the code of ethics and document each employee's agreement to abide by the code.
While many states do not have detailed requirements similar to that of the SEC, RIA Compliance Consultants recommends state firms follow the SEC parameters as a proactive measure.
If your firm has questions or concerns about the code of ethics requirements, please give us a call to discuss how we can help your firm meet its regulatory obligations.
The SEC and many state securities regulators require investment advisor firms to create and implement a code of ethics. All SEC firms must require all employees to read and agree to abide by the firm's original code of ethics and any amendments made to the code. RIA Compliance Consultants recommends requiring an annual acknowledgment of the code of ethics. In addition, advisor firms should also consider implementing an annual training program focused on the code of ethics. As quoted from Rule 204A-1 of the Advisors Act, an SEC advisor's code of ethics must include, at a minimum:
(1) A standard (or standards) of business conduct that you require of your supervised persons, which standard must reflect your fiduciary obligations and those of your supervised persons;
(2) Provisions requiring your supervised persons to comply with applicable Federal securities laws;
(3) Provisions that require all of your access persons to report, and you to review, their personal securities transactions and holdings periodically as provided below;
(4) Provisions requiring supervised persons to report any violations of your code of ethics promptly to your chief compliance officer or, provided your chief compliance officer also receives reports of all violations, to other persons you designate in your code of ethics; and
(5) Provisions requiring you to provide each of your supervised persons with a copy of your code of ethics and any amendments, and requiring your supervised persons to provide you with a written acknowledgment or their receipt of the code and any amendments.
The code of ethics needs to be reviewed by the firm on an annual basis and, if needed, updated. It is important to document any changes to the code of ethics and document each employee's agreement to abide by the code.
While many states do not have detailed requirements similar to that of the SEC, RIA Compliance Consultants recommends state firms follow the SEC parameters as a proactive measure.
If your firm has questions or concerns about the code of ethics requirements, please give us a call to discuss how we can help your firm meet its regulatory obligations.
Labels: Code of Ethics
posted by bhill at 11:22 AM
End of Year Compliance Items - Part 3
This is the third entry in a series of blogs RIA Compliance Consultants is posting concerning annual compliance requirements and end of year filings. While we are trying to touch upon the items that all advisor firms are required to complete, it is important that you refer to your regulatory authority to ensure you have an all inclusive list of the requirements your firm must meet. If your firm has questions or concerns about one of the items listed in this entry, please give us a call to discuss how we can help your firm meets its regulatory obligations.
Written Compliance Programs - The end of the year is a great time to complete a written review of your firm's compliance and procedures program. While we feel that a written compliance program should be reviewed continuously and updated whenever needed, regulators require advisor firms to review and update their compliance programs at least annually. Again, the key is to document those reviews. Once a review is completed, employees should be made aware of the changes and required to sign off on their understanding and acknowledgement of the policies. Even if no changes are made, we suggest that all employees agree to their understanding and acknowledgement of the firm's policies and procedures, in writing, each year.
Code of Ethics - The SEC and many states require advisor firms to have a Code of Ethics. Even if your firm does not require its employees to acknowledge their understanding of its compliance programs on an annual basis, all SEC firms must require all employees to read and agree to abide by the firm's Code of Ethics on an annual basis. The Code of Ethics must be reviewed by the firm on annual basis and if needed, updated. It is important to document any changes to the Code of Ethics and document each employee's agreement to abide by the code. Under the SEC's rule, a firm must include the review of employee's personal securities and its insider trading policy under the Code of Ethics.
Personal Securities Transactions - All SEC advisor firms must collect or prepare updated personal securities holdings reports from all access persons. The information on the report must be current as of a date no more than 45 days before the report is submitted. The annual report does not need to be done at the end of the calendar year; however, the timing of the report must be consistent from year to year. The holdings report is in addition to the review of fourth quarter transaction reports. As part of the Code of Ethics rule, all SEC advisor firms are required to review the activity of their access persons' securities holdings. Quarterly transaction reports must be submitted no later than 30 days after the end of each calendar quarter.
Compliance Training for Representatives and Employees - The end of the year is great time to hold compliance training for all employees and representatives. This is because many firms implement new policies or advisory programs set to take effect at the beginning of the year. Any time a new rule or program is implemented, it is imperative that proper training be provided so all employees are aware of the changes. While we recommend more frequent training sessions or meetings, an annual process is essential in today's regulatory landscape.
Written Compliance Programs - The end of the year is a great time to complete a written review of your firm's compliance and procedures program. While we feel that a written compliance program should be reviewed continuously and updated whenever needed, regulators require advisor firms to review and update their compliance programs at least annually. Again, the key is to document those reviews. Once a review is completed, employees should be made aware of the changes and required to sign off on their understanding and acknowledgement of the policies. Even if no changes are made, we suggest that all employees agree to their understanding and acknowledgement of the firm's policies and procedures, in writing, each year.
Code of Ethics - The SEC and many states require advisor firms to have a Code of Ethics. Even if your firm does not require its employees to acknowledge their understanding of its compliance programs on an annual basis, all SEC firms must require all employees to read and agree to abide by the firm's Code of Ethics on an annual basis. The Code of Ethics must be reviewed by the firm on annual basis and if needed, updated. It is important to document any changes to the Code of Ethics and document each employee's agreement to abide by the code. Under the SEC's rule, a firm must include the review of employee's personal securities and its insider trading policy under the Code of Ethics.
Personal Securities Transactions - All SEC advisor firms must collect or prepare updated personal securities holdings reports from all access persons. The information on the report must be current as of a date no more than 45 days before the report is submitted. The annual report does not need to be done at the end of the calendar year; however, the timing of the report must be consistent from year to year. The holdings report is in addition to the review of fourth quarter transaction reports. As part of the Code of Ethics rule, all SEC advisor firms are required to review the activity of their access persons' securities holdings. Quarterly transaction reports must be submitted no later than 30 days after the end of each calendar quarter.
Compliance Training for Representatives and Employees - The end of the year is great time to hold compliance training for all employees and representatives. This is because many firms implement new policies or advisory programs set to take effect at the beginning of the year. Any time a new rule or program is implemented, it is imperative that proper training be provided so all employees are aware of the changes. While we recommend more frequent training sessions or meetings, an annual process is essential in today's regulatory landscape.
Labels: Code of Ethics, Compliance Program, Compliance Training, PST
posted by bhill at 2:17 PM
Reportable Securities under the Codes of Ethics Rule
In an earlier blog posting, we discussed the fact that investment advisor firms must determine their access persons and ensure appropriate procedures are implemented to review all access persons' household accounts. In their efforts to meet this requirement, many advisor firms have been asking exactly which types of securities holdings and transactions need to be reviewed.
In their final rule release, the SEC provided specific requirements under the Codes of Ethics rule. While an advisor firm may require access persons to report all securities, the SEC did provide an exception for five types of securities. According to the rule, the following types of securities are not required to be reported by access persons:
a. Transactions and holdings in direct obligations of the Government of the United States.
b. Money market instruments - bankers' acceptances, bank certificates of deposit, commercial paper, repurchase agreements and other high quality short-term debt instruments.
c. Shares of money market funds.
d. Transactions and holdings in shares of other types of mutual funds, unless the adviser or a control affiliate acts as the investment adviser or principal underwriter for the fund. This exception includes
e. Transactions in units of a unit investment trust if the unit investment trust is invested exclusively in unaffiliated mutual funds. (This exception is designed to also cover the sub-accounts organized as unit investment trusts of a seperate account of a variable insurance contract.)
It is important to note that the rule does requires access persons to report shares of mutual funds advised by the advisor firm or one of its affiliates. The SEC obviously believes that this is necessary so advisor firms and the SEC, during routine examinations, can detect abusive trading by employees who have access to information about the mutual fund's portfolio.
Does your firm have sufficient procedures in place to identify improper trades or patterns of trading by access persons? Is your CCO reviewing the personal securities transaction reports or have you designated another person to conduct the review? RIA Compliance Consultants is available to answer your questions on the review and supervision of personal accounts.
In their final rule release, the SEC provided specific requirements under the Codes of Ethics rule. While an advisor firm may require access persons to report all securities, the SEC did provide an exception for five types of securities. According to the rule, the following types of securities are not required to be reported by access persons:
a. Transactions and holdings in direct obligations of the Government of the United States.
b. Money market instruments - bankers' acceptances, bank certificates of deposit, commercial paper, repurchase agreements and other high quality short-term debt instruments.
c. Shares of money market funds.
d. Transactions and holdings in shares of other types of mutual funds, unless the adviser or a control affiliate acts as the investment adviser or principal underwriter for the fund. This exception includes
e. Transactions in units of a unit investment trust if the unit investment trust is invested exclusively in unaffiliated mutual funds. (This exception is designed to also cover the sub-accounts organized as unit investment trusts of a seperate account of a variable insurance contract.)
It is important to note that the rule does requires access persons to report shares of mutual funds advised by the advisor firm or one of its affiliates. The SEC obviously believes that this is necessary so advisor firms and the SEC, during routine examinations, can detect abusive trading by employees who have access to information about the mutual fund's portfolio.
Does your firm have sufficient procedures in place to identify improper trades or patterns of trading by access persons? Is your CCO reviewing the personal securities transaction reports or have you designated another person to conduct the review? RIA Compliance Consultants is available to answer your questions on the review and supervision of personal accounts.
Labels: Code of Ethics, PST
posted by bhill at 8:33 AM
Create a Culture of Compliance Through On-Going Training and Education
Regulators have been emphasizing the need for investment advisors to develop and maintain a culture of compliance. Of course, one of the best ways to implement a culture of compliance is for the firm to establish adequate training and continuing education programs.
We recommend that advisor firms hold some form of compliance training or meetings on a monthly basis. These could come in the form of department meetings, on-line continuing education programs, or company-wide teleconferences or web-casts. Each session should be documented and a list kept of those in attendance or those that completed the training.
In light of the SEC's Code of Ethics rule, a special emphasis needs be given to training employees and advisor representatives on the firm's Code of Ethics, which would include the firm's insider trading and personal securities transactions policies. Further topics for compliance meetings and training could cover other policies and procedures of the firm, recent regulatory changes and current compliance hot topics.
Another important requirement is to ensure all employees and advisor representatives read and acknowledge their understanding of the firm's compliance and supervisory procedures manual(s). This should be done on at least an annual basis. In addition, any updates made throughout the year should be sent to every employee and advisory representative upon implementation.
Does your firm have a good continuing education program? Do you provide on-going compliance training? Maybe you do and just need a little guidance on what to cover next. Whatever the case may be, give us a call. We can help you identify and prioritize the issues that your advisor representatives need to know so your firm can achieve a culture of compliance.
We recommend that advisor firms hold some form of compliance training or meetings on a monthly basis. These could come in the form of department meetings, on-line continuing education programs, or company-wide teleconferences or web-casts. Each session should be documented and a list kept of those in attendance or those that completed the training.
In light of the SEC's Code of Ethics rule, a special emphasis needs be given to training employees and advisor representatives on the firm's Code of Ethics, which would include the firm's insider trading and personal securities transactions policies. Further topics for compliance meetings and training could cover other policies and procedures of the firm, recent regulatory changes and current compliance hot topics.
Another important requirement is to ensure all employees and advisor representatives read and acknowledge their understanding of the firm's compliance and supervisory procedures manual(s). This should be done on at least an annual basis. In addition, any updates made throughout the year should be sent to every employee and advisory representative upon implementation.
Does your firm have a good continuing education program? Do you provide on-going compliance training? Maybe you do and just need a little guidance on what to cover next. Whatever the case may be, give us a call. We can help you identify and prioritize the issues that your advisor representatives need to know so your firm can achieve a culture of compliance.
Labels: Code of Ethics, Compliance Program
posted by bhill at 10:12 PM
You Created a Code of Ethics, But Did You Disclose It?
Is your firm's new Code of Ethics described in your ADV Part II? Does your ADV Part II allow clients to request a copy of the Code of Ethics? This is an item that some investment advisors have overlooked. The recently effective SEC Rule 204A-1 requires all SEC registered firms to include a summary of the Code of Ethics in the Form ADV Part II, and, upon request, to provide a complete copy of the code of ethics to advisory clients.
Labels: Code of Ethics
posted by bhill at 2:45 PM
Access Persons Under SEC Rule 204A-1
It's likely that your firm has recently established an "access persons" list and received its first holding reports in order to comply with the recently effective SEC Rule 204A-1. However, is your firm actually supervising the reported transactions of the access persons and documenting such supervision?
Under Rule 204A-1, SEC registered investment advisory firms are required to establish and enforce standards of conduct expected of employees as part of its Code of Ethics. In particular, the rule focuses upon a firm's obligation to review and monitor the securities transactions by "access persons" in order to prevent inappropriate trading.
This leads to the first question -- how to define a firm's access persons. We suggest taking the conservative approach and including all of the firm's employees in addition to the firm's directors, officers, investment advisor representatives (IARs) and any employees of the IARs (if IARs are independent contractors).
The SEC defines an "access person" as the following:
Any of your supervised persons:
(A) Who has access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund, or
(B) Who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic.
(ii) If providing investment advice is your primary business, all of your directors, officers and partners are presumed to be access persons.
In essence, these individuals are considered access persons because they are in the position to inappropriately utilize client information.
Once your firm has determined its access persons, the next step is to establish a procedure for supervising the securities transactions of those identified as access persons. Under the rule, all access persons must report their securities holdings to the firm upon becoming an access person and on an annual basis. In addition, all access persons need to report their securities transactions (direct and indirect beneficial ownership) within 30 days of the end of each calendar quarter. All private placements and initial public offering must be pre-approved by the firm.
We'd recommend that these transactions and holdings be placed in a database so that each access person's records may be cross-referenced easily against clients' transactions. The firm should review these personal transactions for inappropriate conduct like front-running, scalping, insider trading or other misuses of confidential client information.
Finally, your firm must maintain the following records for last five years: lists of its access persons; each report made by an access person; any violation and corrective action; and any decision and supporting reasons to approve an IPO or private placement for an access person.
For more discussions concerning the SEC's Code of Ethics Rule, please continue to visit this blog, Navigating the Regulatory Maze, at RIA-Compliance-Consultants.com.
Under Rule 204A-1, SEC registered investment advisory firms are required to establish and enforce standards of conduct expected of employees as part of its Code of Ethics. In particular, the rule focuses upon a firm's obligation to review and monitor the securities transactions by "access persons" in order to prevent inappropriate trading.
This leads to the first question -- how to define a firm's access persons. We suggest taking the conservative approach and including all of the firm's employees in addition to the firm's directors, officers, investment advisor representatives (IARs) and any employees of the IARs (if IARs are independent contractors).
The SEC defines an "access person" as the following:
Any of your supervised persons:
(A) Who has access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund, or
(B) Who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic.
(ii) If providing investment advice is your primary business, all of your directors, officers and partners are presumed to be access persons.
In essence, these individuals are considered access persons because they are in the position to inappropriately utilize client information.
Once your firm has determined its access persons, the next step is to establish a procedure for supervising the securities transactions of those identified as access persons. Under the rule, all access persons must report their securities holdings to the firm upon becoming an access person and on an annual basis. In addition, all access persons need to report their securities transactions (direct and indirect beneficial ownership) within 30 days of the end of each calendar quarter. All private placements and initial public offering must be pre-approved by the firm.
We'd recommend that these transactions and holdings be placed in a database so that each access person's records may be cross-referenced easily against clients' transactions. The firm should review these personal transactions for inappropriate conduct like front-running, scalping, insider trading or other misuses of confidential client information.
Finally, your firm must maintain the following records for last five years: lists of its access persons; each report made by an access person; any violation and corrective action; and any decision and supporting reasons to approve an IPO or private placement for an access person.
For more discussions concerning the SEC's Code of Ethics Rule, please continue to visit this blog, Navigating the Regulatory Maze, at RIA-Compliance-Consultants.com.
Labels: Code of Ethics
posted by bhill at 6:20 PM
