SEC Publishes July 2008 ComplianceAlert
Today, the U.S. Securities and Exchange Commission (SEC) released its July 2008 ComplianceAlert letter which identifies and describes common deficiencies and weaknesses that SEC examiners have found during compliance examinations of SEC registered investment advisers/mutual funds, broker-dealers, and transfer agents. The release, which is considered official comment from the SEC’s Office of Compliance Inspections and Examinations and other select SEC department staff, provides valuable guidance for registered investment advisors trying to navigate the regulatory maze. In the release, the SEC provides guidance on four major areas: (1) personal trading by advisory staff; (2) proxy voting and funds’ use of proxy voting services; (3) valuation and liquidity issues in high yield municipal bond funds; and (4) soft dollar practices of investment advisors.
The release was prepared based on information gathered from certain risk-targeted examination reviews. It was written as a tool for Chief Compliance Officers and provides valuable tips and techniques for developing customized compliance programs. While some of the guidance provided by the SEC may have little practical application depending on the specific arrangements of your registered investment advisor, the release is still an excellent resource and should be read by every Chief Compliance Officer. You can read the entire release by clicking here.
Since passage of Rule 206(4)-7, which requires all SEC registered investment advisors to: (1) develop written compliance programs; (2) assess those programs on at least an annual basis; and (3) designate a Chief Compliance Officer, the SEC has made a more concerted effort to interact and be proactive with Chief Compliance Officers through tools such as ComplianceAlerts and the CCOutreach program. However, complying with SEC rules and regulations is a daunting challenge. RIA Compliance Consultants, Inc. can help your registered investment advisor navigate the regulatory maze. Visit our website or contact us to learn more about our suite of compliance consulting services.
The release was prepared based on information gathered from certain risk-targeted examination reviews. It was written as a tool for Chief Compliance Officers and provides valuable tips and techniques for developing customized compliance programs. While some of the guidance provided by the SEC may have little practical application depending on the specific arrangements of your registered investment advisor, the release is still an excellent resource and should be read by every Chief Compliance Officer. You can read the entire release by clicking here.
Since passage of Rule 206(4)-7, which requires all SEC registered investment advisors to: (1) develop written compliance programs; (2) assess those programs on at least an annual basis; and (3) designate a Chief Compliance Officer, the SEC has made a more concerted effort to interact and be proactive with Chief Compliance Officers through tools such as ComplianceAlerts and the CCOutreach program. However, complying with SEC rules and regulations is a daunting challenge. RIA Compliance Consultants, Inc. can help your registered investment advisor navigate the regulatory maze. Visit our website or contact us to learn more about our suite of compliance consulting services.
Labels: Compliance Program, Proxy Voting, Regulatory Inspections, SEC, Soft Dollars
posted by bhill at 2:38 PM
SEC Releases Interpretation on Soft-Dollars
Late last month, the SEC issued its most recent interpretation concerning Section 28(e) of the Securities and Exchange Act of 1934, which is better known as the soft dollar safe harbor. The SEC is also soliciting further comments on Section 28(e). As the interpretation released by the SEC points out, soft dollar arrangements have historically been, and will continue to be, a hot topic with regulators. Soft dollar arrangements are viewed as arrangements under which products or services other than execution of securities transactions are obtained by an advisor from or through a broker/dealer in exchange for the direction of client brokerage transactions to the broker/dealer.
There are two types of soft dollar arrangements, those that fall under the Section 28(e) safe harbor and those that fall outside of the safe harbor.
Under Section 28(e), advisors, exercising investment discretion over an account, that receive services and products falling under the safe harbor shall not be deemed to have acted unlawfully or to have breached their fiduciary duty because the use of the services causes an account to pay more than the lowest available commission. However, the advisor must determine, in good faith, that the amount of the commission is reasonable in relation to the brokerage and research services provided. The SEC’s interpretive release provides guidance in this area and states the safe harbor provisions apply to arrangements that (1) pass an application of eligibility criteria; (2)that the advisor’s lawful and appropriate use of the items; and (3) the advisor’s good-faith determination that the commissions paid are reasonable in light of the value of the services received. While arrangements that fall under the safe harbor are protected, they must still be fully disclosed in the firm’s Form ADV or similar disclosure brochure.
Soft dollar arrangements that fall outside the safe harbor are not prohibited; however, they will come under greater scrutiny from regulators and clients. Therefore, it is even more important to fully disclose these types of arrangements in the firm’s Form ADV or similar disclosure brochure. Answers to questions such as what are the arrangements, when do they occur, why are they received, and what are the results of receiving such services and/or products should be disclosed to clients in the Form ADV or disclosure brochure.
All advisor firms need to identify soft dollar arrangements and make sure such arrangements are fully disclosed in their Form ADV. While the Form ADV does not have a specific question regarding soft dollars, regulators expect to see disclosure to Items 12 and 13 of Form ADV Part II on the Schedule F.
Has your firm properly disclosed its soft dollar arrangements? Has your firm even identified all soft dollar situations especially those that fall outside Section 28(e)? If you have questions concerning soft dollar arrangements, would like to discuss the SEC’s interpretation further, or would like to discuss any other conflicts of interest please give us a call.
There are two types of soft dollar arrangements, those that fall under the Section 28(e) safe harbor and those that fall outside of the safe harbor.
Under Section 28(e), advisors, exercising investment discretion over an account, that receive services and products falling under the safe harbor shall not be deemed to have acted unlawfully or to have breached their fiduciary duty because the use of the services causes an account to pay more than the lowest available commission. However, the advisor must determine, in good faith, that the amount of the commission is reasonable in relation to the brokerage and research services provided. The SEC’s interpretive release provides guidance in this area and states the safe harbor provisions apply to arrangements that (1) pass an application of eligibility criteria; (2)that the advisor’s lawful and appropriate use of the items; and (3) the advisor’s good-faith determination that the commissions paid are reasonable in light of the value of the services received. While arrangements that fall under the safe harbor are protected, they must still be fully disclosed in the firm’s Form ADV or similar disclosure brochure.
Soft dollar arrangements that fall outside the safe harbor are not prohibited; however, they will come under greater scrutiny from regulators and clients. Therefore, it is even more important to fully disclose these types of arrangements in the firm’s Form ADV or similar disclosure brochure. Answers to questions such as what are the arrangements, when do they occur, why are they received, and what are the results of receiving such services and/or products should be disclosed to clients in the Form ADV or disclosure brochure.
All advisor firms need to identify soft dollar arrangements and make sure such arrangements are fully disclosed in their Form ADV. While the Form ADV does not have a specific question regarding soft dollars, regulators expect to see disclosure to Items 12 and 13 of Form ADV Part II on the Schedule F.
Has your firm properly disclosed its soft dollar arrangements? Has your firm even identified all soft dollar situations especially those that fall outside Section 28(e)? If you have questions concerning soft dollar arrangements, would like to discuss the SEC’s interpretation further, or would like to discuss any other conflicts of interest please give us a call.
Labels: Soft Dollars
posted by bhill at 10:59 AM
