Does your Investment Adviser Have Effective Procedures to Monitor and Approve Performance Advertisements?
Advertising continues to be one of the primary focus areas of the SEC during investment adviser examinations. More specifically, performance advertising is one of the more common deficiencies found during SEC examinations and one that needs effective compliance oversight. During examinations, the SEC is interested in whether investment advisers have effective policies and procedures to make sure that their claims about past investment performance, their advertisements, and other marketing materials, among other things, contain accurate information, are not misleading, are not promissory, and have been reviewed by compliance.
Unfortunately, SEC Rule 206(4)-1 (Advertisements by Investment Advisers) under the Investment Advisers Act of 1940 provides little guidance on performance advertising. Much of the SEC's guidance is spelled out in no-action letters, with probably the most important one being Clover Capital Management, Inc., and enforcement actions. Investment advisers that regularly advertise performance need be familiar with the parameters outlined in Clover. The importance of Clover is heightened by the fact that the SEC staff, as a matter of policy, does not review specific advertisements except when conducting an examination of an investment adviser.
The following is a general summary of proper performance advertising compliance outlined by the SEC’s Division of Investment Management and Office of Compliance.
The SEC staff has said that, if you advertise your past investment performance record, you should disclose all material facts necessary to avoid any unwarranted inference. For example, SEC staff has indicated that it may view performance data to be misleading if it:
· does not disclose prominently that the results portrayed relate only to a select group of the adviser’s clients, the basis on which the selection was made, and the effect of this practice on the results portrayed, if material;
· does not disclose the effect of material market or economic conditions on the results portrayed (e.g., an advertisement stating that the accounts of the adviser’s clients appreciated in value 25% without disclosing that the market generally appreciated 40% during the same period);
· does not reflect the deduction of advisory fees, brokerage or other commissions, and any other expenses that accounts would have or actually paid;
· does not disclose whether and to what extent the results portrayed reflect the reinvestment of dividends and other earnings;
· suggests or makes claims about the potential for profit without also disclosing the possibility of loss;
· compares model or actual results to an index without disclosing all material facts relevant to the comparison (e.g., an advertisement that compares model results to an index without disclosing that the volatility of the index is materially different from that of the model portfolio); and
· does not disclose any material conditions, objectives, or investment strategies used to obtain the results portrayed (e.g., the model portfolio contains equity stocks that are managed with a view towards capital appreciation).
If your investment adviser utilizes performance advertising, you should attend our webinar, “Approving Performance Advertising,” on Wednesday, January 27, 2010 from 12:00 p.m. to 1:00 p.m. CST to learn more about developing strong compliance policies and procedures for preparing, approving and maintaining records related to performance advertising. During this webinar, our consultants will examine the SEC's advertising rule, the SEC no-actions concerning performance advertising and related SEC enforcement actions. RIA Compliance Consultants will provide best practices and disclosures for investment advisers utilizing performance advertising.
Labels: Advertising, Webinar
posted by bhill at 11:01 AM
Upcoming Webinar: Supervising Gifts & Political Contributions of Investment Adviser Representatives
Although the U.S. Securities and Exchange Commission (“SEC”) does not currently have any specific rules associated with the giving or receiving gifts or political contributions by representatives affiliated with a federally registered investment adviser, the influencing of others through gifts and political contributions in the context of an investment advisory relationship creates a potential conflict of interest, which must be addressed and mitigated by an investment adviser.
If you are interested in learning more about recent enforcement actions against investment advisers which lacked safeguards related to gifts and political contributions, please consider purchasing a 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.
During this webinar, our speaker, Bryan Hill, will share best practices for supervising gifts and political contributions while reviewing recent SEC enforcement actions against investment advisers, the proposed political contribution rule for investment adviser reps, current rules of FINRA and the U.S. Department of Labor which may apply to some investment adviser representatives and guidance from certain professional accrediting organizations on this subject.
Purchase your webinar seat for $59.95: www.RIA-Compliance-Consultants.com/webinars.
If you are interested in learning more about recent enforcement actions against investment advisers which lacked safeguards related to gifts and political contributions, please consider purchasing a 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.
During this webinar, our speaker, Bryan Hill, will share best practices for supervising gifts and political contributions while reviewing recent SEC enforcement actions against investment advisers, the proposed political contribution rule for investment adviser reps, current rules of FINRA and the U.S. Department of Labor which may apply to some investment adviser representatives and guidance from certain professional accrediting organizations on this subject.
Purchase your webinar seat for $59.95: www.RIA-Compliance-Consultants.com/webinars.
Labels: Gifts, Political Contributions, Webinar
posted by bhill at 11:03 AM
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
Join Our Webinar - Auditing Investment Advisory Fee Calculations, Deductions & Refunds
Earlier this year, the U.S. Securities and Exchange Commission ("SEC") proposed new requirements for registered investment advisor firms that have custody of clients funds and securities. According to current SEC Rule 206(4)-2, Custody or Possession of Funds of Securities of Clients, custody is defined as “holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them. Custody includes –
(i) Possession of client funds or securities, (but not of checks drawn by clients and made payable to third parties,) unless you receive them inadvertently and you return them to the sender promptly but in any case within three business days of receiving them;
(ii) Any arrangement (including a general power of attorney) under which you are authorized or permitted to withdraw client funds or securities maintained with a custodian upon your instruction to the custodian; and
(iii) Any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives you or your supervised person legal ownership of or access to client funds or securities.
The SEC’s proposed changes to Rule 206(4)-2 do not change the definition of custody or change what is considered custody, but impose additional requirements such as hiring a public accounting firm to perform an annual surprise examination for purpose of verifying client assets. Not surprisingly the proposed rule changes prompted significant discussion and resistance. Most of the investment advisory industry’s resistance has been aimed at the applicability of the audit requirements for the most common form of custody, automatic fee deductions from client accounts. It is estimated by the SEC that a large majority of SEC registered investment advisors automatically deduct their advisory fees from client accounts. The SEC considers this practice to be a type of custody covered under item (ii) above.
Many within the investment advisory industry believe automatic fee deductions pose lower risk than other forms of custody. While this may be true, there are significant risks and potential conflicts associated with automatically deducting advisory fees from client accounts. The fact of the matter is that the SEC and state securities regulators have brought several enforcement actions alleging fraudulent conduct involving the misappropriation and/or misuse of client funds directly related to automatic fee deductions. Fee deduction activities continue to be a focal point during regulatory examinations. Investment advisor firms need to have strong checks and balances to ensure their fee deduction policies and procedures are sufficient. Testing mechanisms need to be reasonably designed and then implemented to prevent, detect and correct errors from occurring during the fee calculation and deduction process. More importantly, supervisory procedures need to protect against fraudulent activity. All registered investment advisor firms need to make sure their compliance procedures go beyond the minimum regulatory requirements of having written client authorization to deduct fees from accounts and ensuring fee calculations appear on client account statements. Procedures need to include ongoing monitoring and auditing of the process.
Some of the more common deficiencies we often note when conducting mock regulatory reviews and annual assessments for our clients include (1) investment advisory fees being deducting from the wrong account; (2) miscalculation of quarterly or monthly investment advisory fees; (3) the agreed upon investment advisory fee between the client and advisor incorrectly entered into the investment advisor’s client database system; (4) the misconception that the client’s qualified custodian is auditing the accuracy of the investment advisor’s investment advisory fee calculations; (5) the investment advisor intentionally or unintentionally overcharging client accounts; and (6) the investment advisor failing to develop procedures to supervise and monitor the investment advisory fee calculation and deduction process.
Does your registered investment advisor firm adequately monitor its fee deduction process? Do you have questions about this important compliance function? If so, join us on Thursday, October 8 at 12:00 p.m. CST for a live webcast titled “Auditing Investment Advisory Fee Calculations, Deductions & Refunds”. During this informative one-hour online event, we will discuss the implications of proposed changes to SEC Rule 206(4)-2, recent regulatory enforcement actions, and best practices with respect to fee calculations, deductions and refunds. The fee to sign up for the webcast is $59.95. You can register now by clicking the link below.
(i) Possession of client funds or securities, (but not of checks drawn by clients and made payable to third parties,) unless you receive them inadvertently and you return them to the sender promptly but in any case within three business days of receiving them;
(ii) Any arrangement (including a general power of attorney) under which you are authorized or permitted to withdraw client funds or securities maintained with a custodian upon your instruction to the custodian; and
(iii) Any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives you or your supervised person legal ownership of or access to client funds or securities.
The SEC’s proposed changes to Rule 206(4)-2 do not change the definition of custody or change what is considered custody, but impose additional requirements such as hiring a public accounting firm to perform an annual surprise examination for purpose of verifying client assets. Not surprisingly the proposed rule changes prompted significant discussion and resistance. Most of the investment advisory industry’s resistance has been aimed at the applicability of the audit requirements for the most common form of custody, automatic fee deductions from client accounts. It is estimated by the SEC that a large majority of SEC registered investment advisors automatically deduct their advisory fees from client accounts. The SEC considers this practice to be a type of custody covered under item (ii) above.
Many within the investment advisory industry believe automatic fee deductions pose lower risk than other forms of custody. While this may be true, there are significant risks and potential conflicts associated with automatically deducting advisory fees from client accounts. The fact of the matter is that the SEC and state securities regulators have brought several enforcement actions alleging fraudulent conduct involving the misappropriation and/or misuse of client funds directly related to automatic fee deductions. Fee deduction activities continue to be a focal point during regulatory examinations. Investment advisor firms need to have strong checks and balances to ensure their fee deduction policies and procedures are sufficient. Testing mechanisms need to be reasonably designed and then implemented to prevent, detect and correct errors from occurring during the fee calculation and deduction process. More importantly, supervisory procedures need to protect against fraudulent activity. All registered investment advisor firms need to make sure their compliance procedures go beyond the minimum regulatory requirements of having written client authorization to deduct fees from accounts and ensuring fee calculations appear on client account statements. Procedures need to include ongoing monitoring and auditing of the process.
Some of the more common deficiencies we often note when conducting mock regulatory reviews and annual assessments for our clients include (1) investment advisory fees being deducting from the wrong account; (2) miscalculation of quarterly or monthly investment advisory fees; (3) the agreed upon investment advisory fee between the client and advisor incorrectly entered into the investment advisor’s client database system; (4) the misconception that the client’s qualified custodian is auditing the accuracy of the investment advisor’s investment advisory fee calculations; (5) the investment advisor intentionally or unintentionally overcharging client accounts; and (6) the investment advisor failing to develop procedures to supervise and monitor the investment advisory fee calculation and deduction process.
Does your registered investment advisor firm adequately monitor its fee deduction process? Do you have questions about this important compliance function? If so, join us on Thursday, October 8 at 12:00 p.m. CST for a live webcast titled “Auditing Investment Advisory Fee Calculations, Deductions & Refunds”. During this informative one-hour online event, we will discuss the implications of proposed changes to SEC Rule 206(4)-2, recent regulatory enforcement actions, and best practices with respect to fee calculations, deductions and refunds. The fee to sign up for the webcast is $59.95. You can register now by clicking the link below.
Labels: Custody, Fee Audit, Webinar
posted by bhill at 3:04 PM
NASAA Proposes Model Rule Regarding Solicitors for Registered Investment Advisors
The Investment Adviser Regulatory Policy and Review Project Group of the North American Securities Administrators Association (known as "NASAA" and essentially consisting of state securities regulators) recently solicited comments from the public on a proposed model rule regarding solicitors for registered investment advisors. The comment period ended in August and NASAA has not yet released a final version of the model rule. According to NASAA’s website, the model rule “is necessary and appropriate to facilitate the regulation of solicitor activity for the benefit of investors, to promote uniformity among the states and between states and federal rules, and to provide guidance to the industry.”
The proposed model rule for solicitor arrangements reaffirms the solicitor/investment advisor written agreement and client disclosure requirements that are already on the books in many states. But the proposed model rule goes further to make very clear that the solicitor must be licensed as an investment advisor representative. While most states require solicitors to license as investment advisor representatives, there is a high level of confusion within the industry regarding solicitor registration and qualifications. Currently, only about 10 states do not require solicitors to license as investment advisors so the model rule includes a provision exempting solicitors from the investment advisor representative licensing requirements for states that choose to do so. The model rule is designed to mirror Rule 206(4)-3 of the U.S. Securities and Exchange Commission ("SEC") provisions for statutory disqualifications, written agreements and disclosures to clients.
NASAA’s proposed rules are being provided under the Uniform Securities Act of 1956 and under the Uniform Securities Act of 2002. Therefore it is important to note that just because NASAA adopts a new model rule, it does not mean every state will automatically adopt the rule. While many states strictly follow the Uniform Securities Act’s provisions for investment advisors, some do not. Also, the adoption of any new rule must be made by the individual state. For example, in some states the securities division is given more latitude to implement new rules while other states securities division may require specific authorization from the state legislature. You can read more about the proposed rule on the NASAA website.
To learn information about the regulatory requirements for investment advisor solicitor arrangements, you can purchase our webinar, “Establishing & Supervising Solicitor Arrangements," recorded on August 19, 2009 and view on-demand for a purchase price of $59.95. During this webinar, our consultants review in detail the requirements of SEC Rule 206(4)-3, the registration requirements of certain states and best supervisory practices for an investment adviser utilizing solicitors.
Purchase this on-demand webinar, “Establishing & Supervising Solicitor Arrangements," for $59.95 by clicking below.
The proposed model rule for solicitor arrangements reaffirms the solicitor/investment advisor written agreement and client disclosure requirements that are already on the books in many states. But the proposed model rule goes further to make very clear that the solicitor must be licensed as an investment advisor representative. While most states require solicitors to license as investment advisor representatives, there is a high level of confusion within the industry regarding solicitor registration and qualifications. Currently, only about 10 states do not require solicitors to license as investment advisors so the model rule includes a provision exempting solicitors from the investment advisor representative licensing requirements for states that choose to do so. The model rule is designed to mirror Rule 206(4)-3 of the U.S. Securities and Exchange Commission ("SEC") provisions for statutory disqualifications, written agreements and disclosures to clients.
NASAA’s proposed rules are being provided under the Uniform Securities Act of 1956 and under the Uniform Securities Act of 2002. Therefore it is important to note that just because NASAA adopts a new model rule, it does not mean every state will automatically adopt the rule. While many states strictly follow the Uniform Securities Act’s provisions for investment advisors, some do not. Also, the adoption of any new rule must be made by the individual state. For example, in some states the securities division is given more latitude to implement new rules while other states securities division may require specific authorization from the state legislature. You can read more about the proposed rule on the NASAA website.
To learn information about the regulatory requirements for investment advisor solicitor arrangements, you can purchase our webinar, “Establishing & Supervising Solicitor Arrangements," recorded on August 19, 2009 and view on-demand for a purchase price of $59.95. During this webinar, our consultants review in detail the requirements of SEC Rule 206(4)-3, the registration requirements of certain states and best supervisory practices for an investment adviser utilizing solicitors.
Purchase this on-demand webinar, “Establishing & Supervising Solicitor Arrangements," for $59.95 by clicking below.
Labels: Solicitors, Webinar
posted by bhill at 7:48 PM
Registered Investment Advisors Need to Monitor Outside Business Activities of Investment Advisor Representatives
The establishment of policies and procedures designed to monitor the outside business activities ("OBAs") of supervised persons (i.e. officers, directors, partners, investment advisor representatives, and employees) should be part of every registered investment advisor firm's written compliance programs. RIA Compliance Consultants, Inc. suggests that some type of "outside business activities form" be created and all supervised persons be required to complete the form on an annual basis and whenever changes are needed. A supervised person should disclose and seek approval of an outside business activity prior to engaging in the activity.
There are two important regulatory reasons for monitoring outside business activities: (a) Form ADV disclosure purposes, and (b) Form U4 disclosure purposes. A registered investment advisor is required to disclose to clients all potential and real conflicts of interests including outside activities of the firm and its related persons. Item 8 of Form ADV Part II outlines specific business activities or affiliations of the firm's related persons that must be disclosed. These include affiliations with institutions such as banks, real estate brokers, and broker/dealers. Individuals listed under Item 6 of Form ADV Part II need to provide detailed business background for the preceding five years. Finally, Item 7.C. of the Form ADV Part II may require the registered investment advisor firm to provide a description of the supervised person's outside activity and the amount of time spent on that activity.
In addition to disclosing outside activities on the Form ADV, investment advisor representatives ("IARs") must disclose their employment history for the previous 10 years and their current outside business activity on the Form U4. It is the investment advisor representative's ultimate responsibility to keep the Form U4 current and complete, particularly his/her employment and other business background.
Registered investment advisors need to be cognizant of the 30 day deadline for making material updates to the Form ADV and Form U4. Whenever an individual or firm's outside business activities change, those activities need to be updated on the Form ADV and/or Form U4 within 30 days of the change.
Jarrod James, Vice President of RIA Compliance Consultants, will be the featured speaker during our webinar, "Addressing Outside Business Activities and Conflicts of Interest," on Tuesday, September 15, 2009 from 12:00 p.m. to 1:00 p.m. CST.
Purchase your webinar seat for $59.95:
www.RIA-Compliance-Consultants.com/webinars.
There are two important regulatory reasons for monitoring outside business activities: (a) Form ADV disclosure purposes, and (b) Form U4 disclosure purposes. A registered investment advisor is required to disclose to clients all potential and real conflicts of interests including outside activities of the firm and its related persons. Item 8 of Form ADV Part II outlines specific business activities or affiliations of the firm's related persons that must be disclosed. These include affiliations with institutions such as banks, real estate brokers, and broker/dealers. Individuals listed under Item 6 of Form ADV Part II need to provide detailed business background for the preceding five years. Finally, Item 7.C. of the Form ADV Part II may require the registered investment advisor firm to provide a description of the supervised person's outside activity and the amount of time spent on that activity.
In addition to disclosing outside activities on the Form ADV, investment advisor representatives ("IARs") must disclose their employment history for the previous 10 years and their current outside business activity on the Form U4. It is the investment advisor representative's ultimate responsibility to keep the Form U4 current and complete, particularly his/her employment and other business background.
Registered investment advisors need to be cognizant of the 30 day deadline for making material updates to the Form ADV and Form U4. Whenever an individual or firm's outside business activities change, those activities need to be updated on the Form ADV and/or Form U4 within 30 days of the change.
Jarrod James, Vice President of RIA Compliance Consultants, will be the featured speaker during our webinar, "Addressing Outside Business Activities and Conflicts of Interest," on Tuesday, September 15, 2009 from 12:00 p.m. to 1:00 p.m. CST.
Purchase your webinar seat for $59.95:
www.RIA-Compliance-Consultants.com/webinars.
Labels: Form ADV, IAR Licensing, Outside Business Activities, Webinar
posted by bhill at 6:17 PM
RIAs Required to Disclose Conflicts of Interest & Outside Business Activities
A registered investment advisor has a fiduciary duty to disclose all real and potential conflicts of interests to clients as well as all material arrangements. Often times this broad requirement encompasses outside business activities the registered investment advisor considers non-advisory and would otherwise not disclose to clients. For example, a registered investment advisor that spends only 10% of its time on investment advisory activities and 90% of its time on non-advisory activities is required to disclose this fact. It must be made clear to all clients that the registered investment advisor will not devote all of its time to investment advisory functions unlike other registered investment advisor firms whose only activity is acting as an investment advisor.
An outside business activity may create an incentive to the registered investment advisor that is not in the best interests of the client. For example, an investment advisor representative that is also an insurance agent may decide to recommend a particular insurance product based on an incentive to sell the product (e.g. higher commission, soft-dollars, trips, marketing allowance) rather than recommending the product solely based on the needs of the client. This is a classic conflict of interest that must be disclosed to investment advisory clients. A registered investment advisor’s failure to disclose outside business activities and the outside business activities of its supervised persons is an all-too-often deficiency during examinations by the U.S. Securities and Exchange Commission ("SEC") and state securities regulators.
A related type of deficiency is the failure to adequately monitor and approve outside business activities considered investment related. Certain financial related activities are considered higher risk for conflicts of interest between an investment advisor representative ("IAR") and his/her clients and even his/her firm. These activities include wholesaling investment products, affiliation with a broker/dealer, acting as a mortgage broker, working for a second registered investment advisor, and serving as a limited partner or managing member of a private investment. Before a registered investment advisor allows its supervised persons (which includes all officers, directors, partners, investment advisor representatives and employees) to engage in these types of activities, it is imperative that the supervised person fully disclose the activity and provide detailed documentation of how the activity will impact their affiliation with the registered investment advisor. If the activity does not comply with the registered investment advisor’s compliance policies and procedures, the registered investment advisor should not approve the activity.
For more information and guidance regarding outside business activities common to many registered investment advisors and to learn some best practices with respect to disclosure and mitigation of conflicts of interest, please consider attending our webinar, “Addressing Outside Business Activities and Conflicts of Interest,” on Tuesday, September 15, 2009 from 12:00 p.m. to 1:00 p.m. CST.
Purchase your webinar seat for $59.95 at www.RIA-Compliance-Consultants.com/webinars.
An outside business activity may create an incentive to the registered investment advisor that is not in the best interests of the client. For example, an investment advisor representative that is also an insurance agent may decide to recommend a particular insurance product based on an incentive to sell the product (e.g. higher commission, soft-dollars, trips, marketing allowance) rather than recommending the product solely based on the needs of the client. This is a classic conflict of interest that must be disclosed to investment advisory clients. A registered investment advisor’s failure to disclose outside business activities and the outside business activities of its supervised persons is an all-too-often deficiency during examinations by the U.S. Securities and Exchange Commission ("SEC") and state securities regulators.
A related type of deficiency is the failure to adequately monitor and approve outside business activities considered investment related. Certain financial related activities are considered higher risk for conflicts of interest between an investment advisor representative ("IAR") and his/her clients and even his/her firm. These activities include wholesaling investment products, affiliation with a broker/dealer, acting as a mortgage broker, working for a second registered investment advisor, and serving as a limited partner or managing member of a private investment. Before a registered investment advisor allows its supervised persons (which includes all officers, directors, partners, investment advisor representatives and employees) to engage in these types of activities, it is imperative that the supervised person fully disclose the activity and provide detailed documentation of how the activity will impact their affiliation with the registered investment advisor. If the activity does not comply with the registered investment advisor’s compliance policies and procedures, the registered investment advisor should not approve the activity.
For more information and guidance regarding outside business activities common to many registered investment advisors and to learn some best practices with respect to disclosure and mitigation of conflicts of interest, please consider attending our webinar, “Addressing Outside Business Activities and Conflicts of Interest,” on Tuesday, September 15, 2009 from 12:00 p.m. to 1:00 p.m. CST.
Purchase your webinar seat for $59.95 at www.RIA-Compliance-Consultants.com/webinars.
Labels: Conflict of Interest, Outside Business Activities, Webinar
posted by bhill at 3:30 PM
Upcoming Webinar Addressing Succession Planning for RIAs
Many individuals who operate their own registered investment adviser firms have a tendency to delay succession planning and deal almost exclusively with shorter-term business issues. However, succession planning is a critical issue, in particular, for a small registered investment adviser firm due to the risks that one key investment adviser representative could become unavailable, on either a temporary or permanent basis, to serve clients and operate the registered investment adviser firm. In the interest of both the investment advisory practice and its clients, it is critical to plan for continuity and succession of the registered investment adviser firm.
Ideally, a registered investment adviser's business succession plan should be in place well in advance of any investment adviser representative's planned or unplanned departure from the investment advisory practice. There are several components that comprise a successful succession plan, such as: (a) creating an ideal scenario for departure of the investment adviser representative; (b) identifying and evaluating potential buyers or other successors; (c) deciding how the registered investment adviser firm's responsibilities will be distributed to the successors; (d) if necessary, determining who will mentor the successors; (e) determining the value of your registered investment adviser firm; and (f) addressing tax implications of the succession and implementing strategies to reduce taxes.
Particularly, with respect to creating an ideal scenario for planned or unplanned departure of any investment adviser representative and in determining the value of your registered investment adviser firm, it is critical to be aware of financial industry regulations and requirements affecting a registered investment adviser. These include FINRA's Continuing Commissions policy and corresponding SEC guidance regarding continuing commissions for registered representatives of a broker-dealer; the privacy policies of relinquishing and receiving firms and custodians if the succession plan will involve a change of the actual investment adviser firm entity or the custodian for client accounts; licensing and registration requirements for the investment adviser firm and any affiliated investment advisory representatives; assignment provisions of the Investment Advisers Act, restrictive covenants, such as non-solicitation or non-compete agreements, affecting the investment adviser representative and/or intended successors; and continuity of existing business contracts.
For more information and guidance about the regulatory considerations when planning for succession within your registered investment adviser, purchase a webinar seat for "Planning for Succession" sponsored by RIA Compliance Consultants and presented by our affiliated law firm, Bryan Hill Attorney at Law, on Tuesday, September 8, 2009 from 12:00 -1:00 p.m. Central Standard Time. The charge for this webinar is $59.95.
Purchase for $59.95 your webinar seat now: www.RIA-Compliance-Consultants.com/webinars
Ideally, a registered investment adviser's business succession plan should be in place well in advance of any investment adviser representative's planned or unplanned departure from the investment advisory practice. There are several components that comprise a successful succession plan, such as: (a) creating an ideal scenario for departure of the investment adviser representative; (b) identifying and evaluating potential buyers or other successors; (c) deciding how the registered investment adviser firm's responsibilities will be distributed to the successors; (d) if necessary, determining who will mentor the successors; (e) determining the value of your registered investment adviser firm; and (f) addressing tax implications of the succession and implementing strategies to reduce taxes.
Particularly, with respect to creating an ideal scenario for planned or unplanned departure of any investment adviser representative and in determining the value of your registered investment adviser firm, it is critical to be aware of financial industry regulations and requirements affecting a registered investment adviser. These include FINRA's Continuing Commissions policy and corresponding SEC guidance regarding continuing commissions for registered representatives of a broker-dealer; the privacy policies of relinquishing and receiving firms and custodians if the succession plan will involve a change of the actual investment adviser firm entity or the custodian for client accounts; licensing and registration requirements for the investment adviser firm and any affiliated investment advisory representatives; assignment provisions of the Investment Advisers Act, restrictive covenants, such as non-solicitation or non-compete agreements, affecting the investment adviser representative and/or intended successors; and continuity of existing business contracts.
For more information and guidance about the regulatory considerations when planning for succession within your registered investment adviser, purchase a webinar seat for "Planning for Succession" sponsored by RIA Compliance Consultants and presented by our affiliated law firm, Bryan Hill Attorney at Law, on Tuesday, September 8, 2009 from 12:00 -1:00 p.m. Central Standard Time. The charge for this webinar is $59.95.
Purchase for $59.95 your webinar seat now: www.RIA-Compliance-Consultants.com/webinars
Labels: Assignment, Succession Planning, Webinar
posted by bhill at 9:40 PM
