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Thursday, May 24, 2012

ERISA 408(b)(2) Deadline Approaching

The final deadline for ERISA covered service providers to meet the 408(b)(2) disclosure requirements is July 1, 2012.  Failure to provide the required disclosures will result in a prohibited transaction under ERISA and the Internal Revenue Code.  For an investment advisor who is a service provider to an ERISA covered plan this would likely result in the investment advisor having to repay any compensation received after July 1, plus interest.  Additionally, the investment advisor could face a fine from the U.S. Department of Labor (“DOL”).

RIA Compliance Consultants can help your registered investment advisor create a 408(b)(2) disclosure guide that will satisfy all of the disclosure requirements of the new 408(b)(2) regulations.  Additionally, we can review and update the language in Items 4 and 5 of your Form ADV Part 2A Disclosure Brochure to ensure that you are properly disclosing your retirement plan services.

With the July 1st compliance deadline fast approaching, it is important not to delay!  If you are an existing client of RIA Compliance Consultants, please contact your consultant. If you are a new client, please click here to schedule a time to speak with one of our consultants.

Wednesday, May 23, 2012

Approving Marketing Materials for Investment Advisors

Under the anti-fraud provision of the Investment Advisers Act of 1940 (“Investment Advisers Act”) investment advisors registered with the U.S. Securities and Exchange Commission (“SEC”) must comply with the provision’s requirements concerning advertising and marketing materials. In efforts to prevent fraudulent, deceptive, or manipulative acts, your registered investment advisor should have in place strong supervisory and compliance policies and procedures designed to approve and monitor advertising and marketing materials. 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.

The importance of strong compliance controls for advertising and marketing materials is not limited to SEC registered investment advisor firms. In 2011, the North American Securities Administrators Association (“NASAA”) conducted an examination of 825 state-level advisers that revealed 3,543 deficiencies in 13 categories. Of the reported deficiencies, 21.6% of all investment advisers had at least one advertising deficiency. The result of the examination prompted NASAA to recommend best practices for investment advisers and specifically recommends investment advisers “review all advertisements, including websites and performance advertising, for accuracy.” (For a complete look at the examination results and best practices guidelines, click here.)

For many 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. Investment advisors should avoid specifically prohibited items, including: testimonials; the use of past specific recommendations that were profitable, unless the advisor 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 registered investment advisors should have detailed policies and procedures regarding advertising materials memorialized within their compliance program. It is advisable for investment advisors, as part of their on-going compliance program, to have in place policies requiring the pre-approval of all marketing materials. Investment advisors should be prepared for a thorough review of advertising materials during a regulatory examination.

For more information on the use of marketing materials for your investment advisor, join RIA Compliance Consultants on June 14, 2012, at 12:00 Central for our webinar, “Approving Marketing Materials.” During this webinar RIA Compliance Consultant will review SEC rules, no-action letters and enforcement actions related to marketing materials used by investment advisors. We will discuss examples of prohibited promises, guarantees and untrue statements. Our consultants will discuss best practices and sample disclosures related to client testimonials, client references, third-party rankings, top advisor lists, news article reprints and past investment recommendations. This webinar includes guidance about the regulatory considerations when an investment advisor uses a professional designation or social networking sites. Finally, our consultants will briefly explain the SEC’s requirements in order to show model or actual investment performance in advertising and marketing materials. To register for this webinar, please click here. This webinar is eligible for one credit hour towards the CFP professional designation continuing education requirements.

Saturday, May 12, 2012

More Details of the Investment Adviser SRO Bill

As we have been discussing, Rep. Spencer Bachus, the Chairman of the U.S. House Financial Services Committee, recently released the Investment Advisers Oversight Act of 2012, which would create a self-regulatory organization (“SRO”) for investment advisers.  The Investment Advisers Oversight Act would amend the Investment Advisers Act of 1940 to create a “national investment adviser association” which would be overseen by the U.S. Securities and Exchange Commission (“SEC”).  This investment adviser SRO would be given the authority to propose its own rules, subject to SEC approval, and to discipline its members for any violations of current SEC rules.

Every investment adviser currently registered with the SEC or a state securities regulator would be required to register with the SRO. Limited exceptions to the membership requirement would be granted to broker/dealers as well as investment advisers who primarily advise mutual funds, foreign clients, and private funds.

While, section (g)(1) states that the bill will not “limit or detract from or otherwise preempt the authority of any State securities commission…to adopt rules, investigate possible violations of state law, initiate enforcement proceedings, or otherwise regulate any investment adviser that is subject to state authority.”  State registered investment advisers would be required to join the SRO.  However, they would not be examined by the SRO if their state securities regulator conducts on-site examinations of all of its registered investment advisers at least every four years.  Nonetheless, the SRO will still have the authority to conduct “for cause” examinations of all members of the SRO.

Additionally, each year, after the conclusion of an “annual conference”, the national SRO would need to submit a report to Congress identifying which state regulators have an examination plan in place and a description of how well the state regulators have been meeting their examination plan.

One interesting provision of the Investment Advisers Oversight Act states that “[n]o investment adviser shall be required to be a member of more than one registered national investment adviser association.”  This means there could potentially be more than one SRO and that investment advisers would have a choice as to which one they register with.  However, the bill also states that any SRO would need to have “capacity.”  This limits the likelihood of the formation of two SROs because “capacity” essentially means adequate funding, and it seems unlikely that two SROs could exist given the projected costs of just a single SRO.

Ultimately, this investment adviser SRO bill seems unlikely to pass this year.  It is not even clear if this bill will make it out of the House Financial Services Committee. While it has bi-partisan support (it is co-sponsored by Rep. Carolyn McCarthy, a Democrat from New York), the ranking Democrat on the committee Rep. Barney Frank opposes the bill.  In the event the bill does make it out of committee it would have to pass the Republican controlled house and would then be sent to the Senate, where it is not likely to go anywhere.  However, if this bill is not passed during this congressional term expect to see a similar version when Congress reconvenes next January.

Wednesday, May 9, 2012

DoL Issues Further Guidance on Compliance with ERISA 408(b)(2) Compliance

On Monday May 7th, the U.S. Department of Labor’s Employee Benefits Security Administration (“EBSA”) issued Field Assistance Bulletin No. 2012-02 to provide further guidance on compliance with the new 408(b)(2) regulations, which impose disclosure requirements on service providers, such as investment advisers, to retirement plans covered under the Employee Retirement Income and Security Act of 1974 (“ERISA”).

This Department of Labor bulletin, which addresses topics in a questions and answer format, further clarifies who is considered a covered service provider under ERISA 408(b)(2) regulations and how covered service providers should disclose their fee information.  The bulletin also provides guidance on the ERISA 404(a) regulations, which require plan administrators to make certain disclosures to plan participants.

On Thursday, May 10, 2012, at 12:00 CDT, our affiliated law firm, Bryan Hill Attorney at Law, will be conducting a webinar, New 408(b)(2) Disclosure Requirements Affect Investment Advisers to ERISA Plan Accounts.  During this webinar, we will review the new 408(b)(2) regulations and provide an in-depth discussion on who the regulations apply to and what the disclosures requirements for an investment adviser are under the regulation.  To register for this webinar, click here.

Wednesday, May 9, 2012

Upcoming Compliance Webinar for New ERISA 408(b)(2) Disclosure Requirements

The July 1, 2012, deadline for ERISA service providers to be in compliance with the new 408(b)(2) regulation requirements is quickly approaching. Under the 408(b)(2) regulation requirements, ERISA service providers are required to deliver written disclosures to the plan sponsor to describe the service provider’s services to the plan, the service provider’s fiduciary status to the plan, and the total compensation received by the service provider that is related to the service provider’s services to the plan. Service providers who fail to make the required 408(b)(2) disclosures by the July 1, 2012, deadline may be forced to repay to the plan any compensation received and ultimately can be subject to a twenty percent civil penalty imposed by the Department of Labor.

To assist service providers in complying with the Final Rule “Reasonable Contract or Arrangement Under Section 408(b)(2)-Fee Disclosure,” RIA Compliance Consultant’s will be hosting a webinar that is presented by its affiliated law firm, Bryan Hill Attorney at Law.  During this webinar, the presenters will provide:

  • A review of the Final Rule 408(b)(2) regulation including discussion on the specific disclosure obligations for plan service providers, including investment advisers;
  • A discussion on what service providers and plans are covered under 408(b)(2);
  • An overview of the disclosure information that must be provided; and
  • A look at the procedural history of the 408(b)(2) regulation.

Sign-up today for our upcoming webinar, “New 408(b)(2) Disclosure Requirements Affect Investment Advisers to ERISA Plan Accounts.”  Time is quickly running out to enroll!

Date: Thursday, May 10, 2012

Time: 12:00 pm CDT

Cost: $69.95

This webinar will provide up to one hour of Continuing Education credit to meet the ongoing requirements for maintaining the Certified Financial Planner (“CFP”) certification, approved by the CFP Board of Standards, Inc. To register for this webinar, please click here.

Monday, May 7, 2012

Sample Client Request/Delivery Log for Code of Ethics Rule Available on Facebook

Under Rule 204A-1 (“Code of Ethics Rule”) of the Investment Advisers Act of 1940 (“Investment Advisers Act”), each investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) is required to adopt and implement a code of ethics that sets forth required standards of conduct for all supervised persons of the registered investment adviser and addresses conflicts that arise from personal trading by advisory personnel. Most state securities regulators have similar requirements.

The Code of Ethics Rule does not require investment advisers to adopt a particular standard of conduct, but does necessitate that each investment adviser adopt a code that reflects the fiduciary obligations of the investment adviser and its supervised persons as applicable to the investment adviser’s business model.

Additionally, each investment adviser must describe its code of ethics in its Form ADV Part 2 and provide a copy of its code of ethics to any prospective or current clients, upon request. Any amendments made to the investment adviser’s code of ethics must be provided to all supervised persons of the investment adviser and should be updated in Form ADV Part 2 accordingly. RIA Compliance Consultants would like to offer your investment adviser a complimentary sample Code of Ethics Client Request/Delivery log for use when a client requests a copy of your investment adviser’s code of ethics. To receive your complimentary Client Request/Delivery Log, simply “like” RIA Compliance Consultants on our Facebook page (www.Facebook.com/riacompliace) by clicking here.

Friday, May 4, 2012

NASAA Releases Statement on SRO Bill

Jack Herstein, the president of the North American Securities Administrators Association (“NASAA”) and Assistant Director of the Nebraska Department of Banking and Finance’s Bureau of Securities, has released a statement regarding the Investment Adviser Oversight Act of 2012, recently introduced by Rep. Spencer Bachus, the Chairman of the U.S. House Financial Services Committee.

As we discussed earlier, the proposed bill would amend the Investment Advisers Act of 1940 (“Advisers Act”) to create the “National Investment Adviser Associations” (“NIAAs”), which would be overseen by the U.S. Securities and Exchange Commission (“SEC”).  Investment advisers that are currently registered with the SEC or a state securities regulator would be required to join NIAA.  However, state registered advisers would still be examined by their state securities regulator if the state regulator regularly examines investment advisers.

Jack Herstein’s statement was critical of the bill because it would require state registered advisers to join the SRO regardless of the level of oversight currently provided by their state regulator.  According to Herstein, “[t]here has never been any evidence to suggest that states have failed in their mission of regulating smaller investment advisers.”  He also calls the bill “an astonishing attack on our system of federalism with no demonstrated justification.”

To view the complete statement, click here.

Thursday, May 3, 2012

ERISA 408(b)(2) Disclosure Requirements

The U.S. Department of Labor’s 408(b)(2) regulations require “service providers” to ERISA covered plans to provide the responsible plan fiduciary with the information the responsible plan fiduciary needs to make informed decisions when choosing which services providers to hire for the ERISA plan.  Specifically, 408(b)(2) requires investment advisers who provide advisory services to ERISA covered plans to disclose in writing the investment adviser’s fiduciary status, the services to be provided by the investment adviser, and a description of all direct and indirect compensation that will be received by the investment adviser.

Currently, there are no specific format requirements for these disclosures and these disclosures can be made in multiple documents (for example, in the service agreement between the Plan and the investment adviser and in the investment adviser’s Form ADV Part 2A Disclosure Brochure).  However, if multiple documents are used to make the required 408(b)(2) disclosures, it is recommended that the investment adviser provide a guide or a summary to notify the responsible plan fiduciary of the particular location of the 408(b)(2) disclosures (in other words, a guide to provide the document name and page number where the 408(b)(2) disclosures are made).

If you would like more information and guidance about the 408(b)(2) regulations, on Thursday, May 10, 2012, at 12:00 CDT, our affiliated law firm, Bryan Hill Attorney at Law, will be conducting a webinar, New 408(b)(2) Disclosure Requirements Affect Investment Advisers to ERISA Plan Accounts.  To register for this webinar, click here.

Tuesday, May 1, 2012

House Republican Re-Introduces Investment Adviser SRO Bill

Rep. Spencer Bachus, the Chairman of the House Financial Services Committee, and Rep. Carolyn McCarthy have introduced a bill, the Investment Advisers Oversight Act of 2012, which would create a self-regulatory organization (“SRO”) for investment advisers.

The proposed bill, which is similar to one released last fall by Rep. Bachus, would amend the Investment Advisers Act of 1940 (“Advisers Act”) to create the “National Investment Adviser Associations” (“NIAAs”), which would be overseen by the U.S. Securities and Exchange Commission (“SEC”).  Investment advisers that are currently registered with the SEC or a state securities authority would be required to join NIAA.  However, state registered advisers would still be examined by their state securities authority.

The purpose of forming the SRO would be to increase the frequency of regulatory examinations of investment advisers.  Currently, only around 9% of federally registered investment advisers are subject to a SEC exam each year.

Stay tuned to RIA Compliance Consultants for further updates on this story.

Thursday, April 26, 2012

Annual Delivery of Form ADV Part 2A and Privacy Policy

Under Rule 204-3 of the Investment Advisers Act of 1940, the U.S. Securities and Exchange Commission (“SEC”) requires registered investment advisers (“investment adviser”) to deliver to each client, annually within 120 days after the end of the investment adviser’s fiscal year and without charge, if there are material changes to the investment adviser’s brochure since the investment adviser’s last annual updating amendment:

(1) a current copy of the investment adviser’s disclosure brochure (Form ADV Part 2A or if a wrap-fee client, Form ADV Part 2A Appendix 1); or

(2) a summary of material changes to the investment adviser’s disclosure brochure with an offer to provide a current copy of the disclosure brochure upon request. The offer to provide a current copy of the disclosure brochure must include the investment adviser’s website address (if available), an e-mail address (if available), a telephone number by which a client may obtain the current disclosure brochure from the investment adviser, and must include the Investment Adviser Public Disclosure (IAPD) website address (http://www.adviserinfo.sec.gov/) and identify the IAPD website address as an address for obtaining information about the investment adviser.

SEC registered investment advisers with a fiscal year end of December 31 must make the delivery by April 30.  Many state regulations have the same requirements as the SEC but a state registered investment adviser must review its state regulations for disclosure brochure delivery requirements.

SEC investment advisers that have not made any material changes to their disclosure brochure since the last time they provided, or offered to provide, each client with a copy of the disclosure brochure may elect not to make an annually delivery of the disclosure brochure. However, it is important to remember that each year investment advisers are required to update the amount of assets under management reported at Item 4 of the Form ADV Part 2A Disclosure Brochure and to update any information that is outdated or otherwise inaccurate. Additionally, material changes made to the disclosure brochure must be summarized in Item 2.

Also, under the requirements of Regulation S-P, investment advisers are required to annually provide clients with a copy of the investment adviser’s privacy policy. Therefore, we recommend that investment adviser’s satisfy both the ADV Part 2 and the privacy policy delivery requirements at the same time.

 

 

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* RIA Compliance Consultants, Inc. ("RCC") is not a law firm and does not provide legal services. A compliance consulting relationship with RCC is not provided those legal and professional protections that normally exist under an attorney-client relationship. For more information, please visit our Disclosures webpage.

The determination to use a third-party compliance services provider is an important decision and should not be based solely upon advertisements or self-proclaimed expertise. A description or indication of limitation of our compliance services does not mean that an agency or board has certified RCC as a specialist or expert in investment advisor compliance. All potential clients are urged to make their own independent investigation and evaluation of RCC.

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