SEC Enforcement Action: Investment Adviser Fails to Disclose Affiliate Broker-Dealer Conflicts of Interest

March 14, 2017

The U.S. Securities and Exchange Commission (“SEC”) issued an enforcement action recently against an investment adviser firm for its alleged failure to disclose fee sharing arrangements that the investment adviser firm entered with its third-party broker dealer. The investment adviser firm consented to the order without admitting or denying the SEC findings, except as specified within the SEC’s Order. Click here to read the full SEC Order Instituting Administrative and Cease-And-Desist Proceedings.

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Inadvertent Custody – SEC Guidance Update

March 07, 2017

In February 2017,  the Division of Investment Management of the U.S. Securities and Exchange Commission (“SEC”) issued a Guidance Update “Inadvertent Custody: Advisory Contract Versus Custodial Contract Authority.” In this Guidance Update, the SEC explained that an investment adviser may have custody of client funds or securities because of provisions in a custodial agreement entered into by the investment advisory client and a qualified custodian.

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SEC Guidance: Robo-Advisers and the Investment Advisers Act of 1940

February 27, 2017

The U.S. Securities and Exchange Commission (“SEC”) recently issued new guidance for investment adviser firms and individual investors considering the use of robo-advisers. Robo-advisers are becoming increasingly popular among investment adviser firms and clients alike, due to their ability to provide targeted investment advice for a lower investment advisory fee, which increases the accessibility of professional investment advice for frugal investors or investors whose account balances may not meet an investment adviser firm’s required minimum account balance. Robo-advisers are not suitable for every client, however, leading the SEC to issue guidance for investment adviser firms seeking to utilize this new technology.

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SEC Enforcement Action – ETFs and Failure to Follow Policies and Procedures

February 15, 2017

The U.S. Securities and Exchange Commission (SEC) issued a press release announcing that an investment adviser, Morgan Stanley Smith Barney, agreed to pay an $8 million penalty to settle charges under the Investment Advisers Act of 1940 relating to single inverse ETF investments it had recommended to investment advisory clients. Click here to for the entire press release and here for the SEC’s order.

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FINRA Fines Firms for Deficiencies in Cybersecurity and Recordkeeping

December 29, 2016

The Financial Industry Regulatory Authority (“FINRA”) recently announced fines against 12 broker-dealers for alleged deficiencies related to their cybersecurity and record retention practices. In each case, the firms – who have consented to the fine without admitting or denying the charges – allegedly failed to properly store electronic records in a “write once read many” format that is meant to protect records from illicit alteration. The “write once read many” format is required by FINRA rules and protects broker-dealers against malicious interference with their vital business records, whether by outside hackers or disgruntled insiders.

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SEC Enforcement Action Alleges Cherry-Picking, Double-Dipping, and Fund Mismanagement

October 25, 2016

The U.S. Securities and Exchange Commission (“SEC”) recently instituted administrative cease-and-desist proceedings against a Washington-based registered investment adviser. The SEC alleges the investment adviser engaged in several schemes meant to defraud clients and unjustly enrich the investment adviser’s personal accounts. Among the alleged wrongdoing was the investment adviser’s scheme to “cherry pick” favorable trades for his personal accounts while allocating unfavorable trades to client accounts. During one relevant period, the SEC claims the investment adviser’s accounts showed a return of 1.39% while the affected client accounts had a -0.78% return. In total, the SEC asserts that the investment advisor profited almost $500,000 while client accounts suffered losses of more than $2 million.

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Addition to RIA Compliance Consultants’ Sample Forms Library – Non-Access Person Acknowledgement Form

October 13, 2016

RIA Compliance Consultants added a new Sample Form to our Sample Forms Library. Our new Non-Access Person Acknowledgement Form is for investment advisers to document employees who are “non-access persons.” According the Securities and Exchange Commission (SEC), an investment adviser’s “access persons” are, “any of the investment adviser’s supervised persons who have access to non-public information regarding any investment advisory client’s purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund or any person who is involved in making securities recommendations to investment advisory clients, or who has access to such recommendations that are nonpublic.”

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