According to the Order, the firm’s principal allegedly grossly misstated Calhoun’s assets under management on the firm’s Form ADV in order to attract investors for two funds of funds.  According to Calhoun’s February 2009 Form ADV, the firm had $79.8 million in assets under management; the SEC’s Order alleges that the firm actually had $7 million in assets under management.  In addition, the SEC’s Order alleges that the principal misstated the assets under management for another investment adviser controlled by the principal.  For that firm, the principal regularly filed the Form ADV and stated the firm’s assets under management ranged from $24 million to $335 million, when in reality, according to the SEC, the firm had no assets under management.

On Thursday, January 12, 2012, RIA Compliance Consultants will be hosting a webinar, “Preparing your Form ADV Annual Amendment.”  During this webinar, we will review the Form ADV items that are required to be updated on an annual basis. The webinar will include a review of the ADV Part 1 instructions for calculating regulatory assets under management.  Our consultants will also discuss some of the common mistakes we see when investment advisors are filing their annual amendment. Additionally, our consultants will also address some of the other amendments and filings that may need to be made with your annual amendment, including those resulting from the recent SEC revisions to the Form ADV.  To register for this webinar, click here.

For a complete release of the SEC’s final “Rules Implementing Amendments to the Investment Advisers Act of 1940,” click here.

For more information regarding regulatory changes made in 2011, register for our webinar, “2011 Review – Are You Aware of the Changes in 2011 and Is Your Investment Advisor on Track for 2012?,” hosted Thursday, November 10, 2011 at 12:00 Central. The cost for this webinar will be $59.95. To register, please click here.

RIA Compliance Consultants can help you with updating your compliance program to comply with the new regulatory requirements or can assist you with switching from SEC to state registration.  If you are an existing client of RIA Compliance Consultants interested in discussing how we can assist your investment advisor, please contact your consultant. If you are a new client that would like to speak with us regarding the services we can provide, please click here to schedule a time to speak with one of our consultants.

Please click here to take this short, six minute survey regarding our compliance webinars.

Thank you for your time and we look forward to hearing from you.

Your investment adviser’s CCO is responsible for administering your investment advisers’ policies and procedures. This does not necessarily mean that the CCO has to be the sole party responsible for performing all the investment adviser’s supervisory functions.  In order to properly delegate some of the supervisory functions, an investment adviser’s CCO must: (i) adopt procedures that are reasonably designed to prevent and detect violations of the federal securities laws; (ii) ensure that a system is in place for applying the procedures; and (iii) make sure that all supervisory responsibilities are reasonably discharged in accordance with the investment adviser’s written policies and procedures in such a manner that the investment adviser’s CCO has no reason to believe that the supervised persons are not complying with the procedures.  It is the ultimate duty of the CCO to develop, implement, maintain, and enforce your investment adviser’s written compliance policies and procedures. The CCO does not need to be responsible for all policies and procedures of your investment adviser firm; however, your firm’s CCO needs to understand Rule 206(4)-7 well enough to know what his/her responsibilities are under the rule.

“Rule 206(4)-7 requires each adviser registered with the Commission to designate a chief compliance officer to administer its compliance policies and procedures. An adviser’s chief compliance officer should be competent and knowledgeable regarding the Advisers Act and should be empowered with full responsibility and authority to develop and enforce appropriate policies and procedures for the firm. Thus, the compliance officer should have a position of sufficient seniority and authority within the organization to compel others to adhere to the compliance policies and procedures.”

-Securities and Exchange Commission (full text here)

RIA Compliance Consultants is hosting a webinar, “Basic Training for a CCO,” on Thursday, August 18, 2011.  This webinar will provide valuable information and tips regarding ongoing responsibilities for your investment adviser’s chief compliance officer in order to avoid violating SEC Rule 206(4)-7.

RIA Compliance Consultants is a team of industry experienced professionals dedicated to working with investment advisers who are also committed to implementing good compliance and risk management strategies. By working together, RIA Compliance Consultants helps investment advisers navigate the maze of investment adviser compliance regulations and find the best ways to satisfy their obligations.

Webinar: Basic Training for a CCO

Date: Thursday, August 18, 2011

Time:  12:00 p.m. to 1:00 p.m. Central

Cost: $59.95

To register, click here.

The new Form ADV Part 2 will require each investment advisor to develop a narrative plain English brochure that describes the investment advisor’s business, conflicts of interest, disciplinary history, and other important information that would help clients make an informed decision about whether to hire or retain that investment adviser.  The new Form ADV Part 2 will have two sub-parts: Part 2A and Part 2B.  Form ADV Part 2A will contain 18 disclosure items about the investment advisory firm that must be included in the narrative brochure.  Form ADV Part 2B, which is being referred to as the “brochure supplement”, will include information about certain investment advisory personnel on whom the clients rely for investment advice.

Pursuant to the new rule, SEC registered investment advisors must respond to each of the disclosure items required in Form ADV Part 2A.  Information must be provided in order of the items in the form, using headings provided by the form.  Investment advisors are instructed to use short sentences; definite, concrete, everyday words; and the active voice.  In addition to many new disclosure requirements, Form ADV Part 2A must contain a cover page, summary of material changes since the advisor’s last annual update, and a table of contents.  Form ADV Part 2B, the supplemental brochure, will require for investment advisory personnel on whom clients rely for investment advice disclosures regarding: educational and business background information; disciplinary information; other business activities; additional compensation arrangements; and information regarding how and by whom the individual is supervised.  A cover page will also be required for Form ADV Part 2B.

Under the new requirements, an SEC registered investment advisor must deliver the brochure to perspective clients before or at the time the client enters into an agreement with the advisor.  Additionally, an SEC registered investment advisors must annually within 120 days of the firm’s fiscal year end deliver either: (1) a copy of the current brochure that includes or is accompanied by the summary of material changes; or (2) a summary of material changes that includes an offer to provide a copy of the current brochure upon request.

New investment advisors applying for registration with the SEC after January 1, 2011 will be required to file brochures meeting the requirements of the new Form ADV Part 2.  Each investment advisor currently registered with the SEC will be required to file a brochure or brochures meeting the new Form ADV Part 2 requirements with its annual updating amendment which is required within 90 days of the firm’s fiscal year end.  For most investment advisors, the fiscal year end is December 31, which means that the new Form ADV Part 2 brochures will need to be filed no later than March 31, 2011.  Each SEC registered investment advisor must deliver a copy of the new Form ADV Part 2 brochure to its existing clients within 60 days of the investment advisor filing its annual amendment.

For more information on the new Form ADV Part 2 requirements of the SEC, please register for our complimentary webinar, Understanding the New ADV Part 2, scheduled for Thursday, August 19 at 12:00 CDT.  Register now for this free webinar by clicking here.

A recent example where the SEC has initiated a disciplinary action as a result of a periodic record inspection is In the Matter of Diane M. Keefe.  In this regulatory enforcement action, the SEC brought an action against Diane Keefe, an employee of a registered investment adviser, when the SEC, while conducting a period examination, discovered that Keefe did not maintain accurate records.

Diane Keefe, a former employee of Pax World Management Corp., a registered investment adviser, was found to have willfully violated Section 34(b) of the Investment Company Act for failure to maintain accurate books and records.  Section 34(b) of the Investment Company Act prohibits investment advisors from making any untrue statement of material fact in a document that is required for record keeping pursuant to Section 31(a) of the Investment Company Act.

Keefe served as the portfolio manager of the Pax World High Yield Fund (“Fund”).  The Fund’s filed registration statements state that an Investment Committee was responsible for overseeing the Fund’s investments.  Keefe created handwritten notes that falsely represented that the Investment Committee was overseeing the investments of the Fund.  However, the Fund’s board had never even assembled the Investment Committee.

The administrative law judge suspended Keefe for twelve months from association with a registered investment adviser or broker-dealer.  Keefe has appealed her suspension and the case has been remanded for further fact-finding determinations.

On July 28, 2010 RIA Compliance Consultants will be conducting a webinar on the topic of  maintaining investment adviser required books and records pursuant to SEC Rule 204-2 issued under the Investment Advisers Act.   Individuals can register for this webinar, or any of our other upcoming webinars, by clicking here.

On Thursday, May 13, 2010 from 12:00 – 1:00 p.m. Central, RIA Compliance Consultants will host a webinar focused on compliance policies and procedures related to advertising.  The webinar, “Approving Marketing Materials”, will focus on SEC no-action letters and enforcement actions related to marketing materials used by investment advisors.  Our consultants will also discuss best practices and sample disclosures. 

If you would like to attend our webinar, Approving Marketing Materials, you can purchase your seat for $59.95 by clicking here

Did you know that an the advertising and marketing materials of an investment advisor registered with the U.S. Securities and Exchange Commission (“SEC”) fall under the anti-fraud provision of the Investment Advisers Act of 1940? This means it may be deemed a fraudulent, deceptive, or manipulative act to publish marketing materials that do not comply with SEC Rule 206(4)-1 under the Advisers Act and the various no-action letters issued by the SEC. Federally registered investment advisors are routinely cited examination deficiencies for issuing non-compliant advertising materials. Much less, investment advisor firms have been cited for simply not establishing reasonably designed compliance policies and procedures for the creation, review and approval of advertising materials.

For many SEC registered investment advisors, advertising materials can generate increased risk exposure. Using advertising claims that cannot be supported or proven, that are promissory, that are misleading or materially inaccurate must be avoided. You can be certain that during an examination, the SEC will thoroughly review advertising materials issued during the inspection period. Specifically prohibited are: testimonials; the use of past specific recommendations that were profitable, unless the adviser includes a list of all recommendations made during the past year; a representation that any graph, chart, or formula can in and of itself be used to determine which securities to buy or sell; and advertisements stating that any report, analysis, or service is free, unless it really is free. An advertisement could include both a written publication (such as a website, blog newsletter or marketing brochure) as well as oral communications (such as an announcement made on radio or television).

All SEC registered investment advisors need to have detailed policies and procedures for advertising materials memorialized within their compliance program. Further, we highly recommend the pre-approval of all marketing materials. When conducting a firm’s annual compliance program assessment, the Chief Compliance Officer needs to be sure to analyze and test the sufficiency of marketing compliance procedures.

The importance of strong compliance controls for advertising and marketing materials is not limited to SEC registered investment advisor firms. In a September 29, 2009 release, the North American Securities Administrators Association (NASAA) once again included advertising as one of the common deficiencies noted during investment advisor examinations conducted by state securities regulators. As part of a strong compliance culture, NASAA recommends that state registered investment advisors review all advertisements, including websites and performance advertising, for accuracy.

On Thursday, May 13, RIA Compliance Consultants will host a webinar focused on compliance policies and procedures related to advertising. The webinar, “Approving Marketing Materials”, will focus on SEC no-action letters and enforcement actions related to marketing materials used by investment advisors. Our consultants will also discuss best practices and sample disclosures. Take this opportunity to purchase your seat to this webinar for only $59.95.

This is the emerging expectation of state and federal securities regulators. For instance, the State of Massachusetts recently adopted a comprehensive and restrictive set of requirements to prevent client data security breaches, which must be met by any investment adviser with a client residing in Massachusetts. Under the this new regulation, an investment adviser firm with a client residing in Massachusetts must develop, implement, maintain and monitor a comprehensive written information security program and ensure that confidential client information stored on portable devices is encrypted.

Likewise, the U.S. Securities and Exchange Commission (“SEC”) has heightened its focus upon how investment adviser firms are safeguarding confidential client information. This increased attention upon the protection of confidential client data has manifested itself in an SEC enforcement action under Regulation S-P against a broker-dealer/investment adviser that was a victim of hacking and a proposal by the SEC to amend Regulation S-P with more specific safeguards for protecting confidential client information.

If you would like to learn more about the proposed and recently passed requirements for protecting confidential client data and best practices, please join us for our webinar, Beyond the Privacy Notice, on Thursday, April 15, 2010, from 12:00 – 1:00 p.m. Central. You can purchase your seat for $59.95 by clicking here.