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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.

To receive a complimentary sample cover letter that you can use for your annual Form ADV and Privacy Policy delivery, click the “Like” button on RIA Compliance Consultants Facebook page.  Clicking the “Like” button on our Facebook page will also provide you access to our periodic release of other complimentary forms and webinar recordings.

Wednesday, April 25, 2012

Who Does the Final ERISA 408(b)(2) Disclosure Regulations Apply To?

As we discussed earlier, the U.S. Department of Labor (“DOL”) has issued the final 408(b)(2) regulations, which place disclosure requirements on “service providers” to ERISA covered plans. Under the 408(b)(2) regulation, a covered service provider is any person who provides services to an ERISA covered plan, if the service provider expects to receive at least $1000 for the services provided. The $1000 threshold applies over the life of the services to the plan and is not calculated on an annual basis. Covered service providers that are required to make disclosures pursuant to 408(b)(2) include state and federally registered investment advisers; record-keepers or brokers who make designated investment alternatives available to an ERISA covered plan; and providers of various services such as accounting, legal, insurance, etc. depending on the particular services provided to the ERISA covered plan.

The 408(b)(2) disclosure obligations are imposed on covered service providers in order to ensure that the “responsible plan fiduciaries” are given the information needed to make informed decisions when choosing which service providers to hire for their ERISA covered plans. A “responsible plan fiduciary” is defined as a fiduciary with the authority to enter into a service agreement for an ERISA covered plan.

If your investment adviser would like more information on the 408(b)(2) regulations, join RIA Compliance Consultants on Thursday May 10, 2012, at 12:00 p.m. CDT, for our upcoming webinar, New 408(b)(2) Disclosure Requirements Affect Investment Advisers to ERISA Plan Accounts. During this webinar, our affiliated law firm, Bryan Hill Attorney at Law, will provide information about the 408(b)(2) regulation, including a review of the definition of covered service provider and will discuss which activities provided by investment advisers are considered to be activities of a “covered service provider” to an ERISA covered plan. To register for this webinar, click here.

Thursday, April 19, 2012

Final ERISA 408(b)(2) Disclosure Regulations

The U.S. Department of Labor (“DOL”) has issued the final 408(b)(2) regulations, which impose disclosure requirements on investment advisors to retirement plans covered by the Employee Retirement Income and Security Act of 1974 (“ERISA”). The DOL first proposed these regulations in 2007. The DOL issued an “interim final” rule in July 2010 and then released the final rule in February 2012.

Under the requirements of the new ERISA 408(b)(2) regulations, service providers, such as investment advisors, to ERISA covered plans are required to disclose certain information including a description of the services provided, a statement as to the service provider’s fiduciary status, and a description of all direct and indirect compensation received related to the services provided. In order to be in compliance with the new ERISA 408(b)(2) regulations, service providers must make these disclosures by no later than July 1, 2012.

On May 10 at 12:00 p.m. Central, RIA Compliance Consultants will be hosting a webinar, presented by our affiliated law firm, Bryan Hill Attorney at Law, regarding the new ERISA 408(b)(2) regulations. During this webinar the speakers will discuss, among other things, who is considered a covered service provider and what disclosures need to be made. Click here to purchase for $69.95 your seat for this webinar.

Wednesday, April 18, 2012

Complimentary Sample Advertising/Marketing Review Form

Receive a complimentary sample Advertising/Marketing Review Form by clicking the “Like” button on our Facebook page.

This sample Advertising/Marketing Review Form can be used by your investment advisor’s chief compliance officer or designated supervisor to document whether proposed advertising and marketing pieces are approved or not approved for use by your investment advisor firm. This can help support your investment advisor’s on-going supervision and internal compliance policies and procedures requiring prior approval before marketing or advertising pieces are used.

If you’d like access to our periodic release of other complimentary forms and webinar recordings, please click here to “Like” the Facebook of RIA Compliance Consultants.

Wednesday, April 11, 2012

Complimentary Code of Ethics Acknowledgement Form

Receive a complimentary sample Code of Ethics Acknowledgement Form by clicking the “Like” button on our Facebook page.

When signed by your investment adviser’s supervised persons, our sample Code of Ethics Acknowledgement Form can serve as the written acknowledgement your investment adviser is required to obtain from all supervised persons under U.S. Securities and Exchange Act Rule 204A-1 of the Investment Advisers Act of 1940.

If you’d like access to our periodic release of other complimentary forms and webinar recordings, please click here to “Like” the Facebook of RIA Compliance Consultants.

Friday, March 30, 2012

Complimentary Books and Records Documentation List

RIA Compliance Consultants encourages you to view our firm’s Facebook page to receive your complimentary sample Books and Records Documentation List. Our sample Books and Records Documentation List can serve as a log and a checklist to help your investment advisor make sure that it is properly maintaining required books and records.  It can also be used as an internal auditing tool to help with proper storage of important documentation.  Investment advisors may be overwhelmed by the amount of information and number of documents that must be maintained to meet the minimum books and records requirements; RIA Compliance Consultants encourages your investment advisor to utilize this Books and Records Documentation List to foster increased organization and proper storing practices.

RIA Compliance Consultants strives to update regularly our Facebook page, which provides instant access to our regulatory alerts and compliance tips. We also post up-to-date compliance articles and are able to offer complimentary webinar recordings and sample forms. The goal behind our Facebook page is to keep your investment advisor firm informed and abreast of critical compliance matters.

If you’d like access to our regulatory alerts, compliance tips and periodic release of complimentary webinar recordings and sample forms, please click here to “Like” RIA Compliance Consultants on Facebook now. As a show of our appreciation, RIA Compliance Consultants will provide you with a free Books and Records Documentation List that will serve to help your investment advisor stay proactive with its on-going compliance program.

Please understand that clicking the “Like” button does not constitute a testimonial for or endorsement of RIA Compliance Consultants, any associated person, or our services. “Like” is not meant in the traditional sense; the clicking of the “Like” button is merely a mechanism to circulate our Facebook page. RIA Compliance Consultants requests that any postings to our Facebook page should refrain from recommending us or providing testimonials for our compliance consulting firm.

Thursday, March 29, 2012

An Investment Advisor Should Test Periodically Whether It Is Maintaining the Required Books & Records

A registered investment advisor is required to make and keep true, accurate and current certain books and records relating to its investment advisory business.  For investment advisors registered with the U.S. Securities and Exchange Commission (SEC), these required books and records are outlined in Rule 204-2 of the Investment Advisers Act of 1940 (“Advisers Act”).  Each investment advisor registered with the SEC should familiarize itself with the requirements of this rule in relation to the documents and reports that need to be maintained, where and for how long the documents must be maintained, and how the documents may be maintained.  Most books and records requirements for state registered investment advisors are the same as or similar to the SEC requirements, but each investment advisor needs to make sure that it familiarizes itself with the requirements of the appropriate governing authority.

Maintenance of books and records is something that should be covered in an investment advisor’s compliance program.  It is not enough just to know what needs to be maintained, an investment advisor should perform periodic testing to make sure that it is maintaining and can provide the appropriate documents.  One effective method of doing this is to have a mock examination performed of your investment advisor.  The investment advisor should take the list of required books and records and test whether it is prepared to present all required documents and if it can do so in a timely manner.  This is something that can be performed by an investment advisor’s own Compliance Department or an investment advisor can hire RIA Compliance Consultants for its Mock Regulatory Review service.

The following are some examples of common books and records deficiencies found by RIA Compliance Consultants when performing mock regulatory review services for investment advisors:

  • Not maintaining an order memorandum or not maintaining complete information in the order memorandum as outlined in Rule 204-2(a)(3) the Advisers Act;
  • Not maintaining current financial or complete financial records;
  • Not maintaining proper documentation to support performance advertising figures;
  • Not maintaining a list of all access persons for the past five years;
  • Not maintaining access person holdings reports;
  • Not maintaining records to support the firm’s duty of best execution;
  • Not maintaining or unable to locate contracts the firm has executed with service providers, sub-advisors, or solicitors;
  • Not able to easily or timely produce copies of requested email records; and
  • Not having complete or adequate written compliance programs or having written compliance programs that are not consistent with what the firm is actually doing.

If your investment advisor would like more information and guidance on maintaining the appropriate books and records for your registered investment advisor, join RIA Compliance Consultants for our upcoming webinar, “Maintaining Investment Adviser Books & Records,” hosted April 12, 2012, at 12:00pm CDT. Our consultants will not simply review Rule 204-2, but instead will provide an overview of the files, documents and reports a regulator may request during an examination of an investment advisor. Our consultants will also discuss some of the common investment advisor deficiencies relating to maintaining appropriate books and records. To register for this event, click here.

Tuesday, March 27, 2012

SEC Finalizes Performance Fee Rules

The U.S. Securities and Exchange Commission (“SEC”) recently finalized revisions to Rule 205-3 under the Investment Advisers Act of 1940, raising the net worth requirements for individuals who are charged performance fees.  As we discussed earlier, the SEC increased the threshold requirements for “qualified clients” to account for inflation.

Under the revised rule, in order for an investment adviser to charge a performance fee, the client must have $1 million under management at the time an advisory contract is entered into with the investment adviser to satisfy the assets-under-management test or the investment adviser must reasonably believe that the client has a net worth of more than $2 million at the time the advisory contract is entered into to satisfy the net worth test.  It is important to note that this rule does not apply to existing relationships; it only applies to contracts entered into on or after the effective date.  While these new rules came into effect last September as part of the SEC’s order, this release will codify those rules.

Additionally, this rule release finalizes a provision that excludes the value of an individual’s residence from the net worth calculation and includes a full disclosure on how future inflation adjustments will be calculated.  These provisions will go into effect on May 22, 2012.

To read the full release, click here.

To the extent your investment advisor charges a performance fee, you should verify and document that any new clients meet these performance fee requirements and correspondingly update your written supervisory policies and procedures and client agreement.

 
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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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