On January 18, 2012, the staff of the U.S. Securities and Exchange Commission (“SEC”) issued a no-action letter addressing the investment adviser registration requirements for Special Purposes Vehicles (“SPV”).
Advertising by investment advisors can generate significant risk exposure depending upon the advertising materials and circumstances.
RIA Compliance Consultants encourages you to view our firm’s Facebook page. In the ever increasing use of social media to communicate, RIA Compliance Consultants is eager to have a simple way to keep our clients updated on compliance matters relating to your investment adviser firm.
The Massachusetts Securities Division recently released a report providing guidance on social media use by investment advisers. As we wrote earlier, the Massachusetts Securities Division has been investigating social media use by investment advisers. This investigation has resulted in the Massachusetts Securities Division issuing this report to provide guidance on the most common issues identified during their investigation.
Although not specifically prohibited, investment advisers should be cautious when using performance data in advertising as the securities regulator may claim that the performance advertisement contains untrue statements of a material fact or is otherwise false or misleading. The U.S. Securities and Exchange Commission (“SEC”) has explained that advertisements shall be considered false or misleading depending on the facts and circumstances involved in its use, including:
The United States Securities and Exchange Commission (“SEC”) recently issued an order instituting cease-and-desist proceedings against an investment adviser representative for misstating performance numbers on performance reports distributed to clients. According to the SEC’s order, the representative overstated client performance numbers and understated losses on individual portfolio performance reports provide to his clients. The investment adviser representative is now barred from associating with another investment adviser firm and required to pay a civil penalty of $60,000.
On January 31, 2012, the U.S. Securities and Exchange Commission (“SEC”) held a Compliance Outreach Program National Seminar in Washington, D.C. for investment advisers and investment companies. In the past, these seminars were generally referred to as “CCO Outreach Programs.” During the introductory remarks for the seminar, Carlo V. di Florio, Director, Office of Compliance Inspections and Examinations for the SEC, explained the reason for the changed program title. Mr. di Florio indicated that the change is based on the SEC’s desire through both its outreach programs and its examination program to “elevate the role of compliance by underscoring that it is not a responsibility that stops at the desk of the CCO” and that the SEC’s intention is to continue its outreach and support for investment adviser’s chief compliance officers (“CCO”).
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.
In August 2004, the U.S. Securities and Exchange Commission (“SEC”) adopted Rule 204A-1 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) that required registered investment advisers to adopt codes of ethics. Under SEC Rule 204A-1, an investment advisory firm must adopt and implement a code of ethics, establishing rules and conduct all supervised persons must adhere to as a fiduciary. SEC Rule 204A-1 was adopted in attempt to create a standard of conduct that would “prevent fraud by reinforcing fiduciary principles that must govern the conduct of advisory firms and their personnel.” Section 206 of the Investment Advisers Act imposes a fiduciary duty on investment advisers by making it unlawful for an investment adviser to engage in fraudulent, deceptive or manipulative conduct. In its role as a fiduciary, an investment adviser has a duty to serve the best interest of its clients; a duty to have a reasonable, independent basis for investment advice; a duty to ensure that its investment advice is suitable to the client’s objectives, needs and circumstances; and a duty to be loyal to client.
Does your investment adviser have errors and omissions insurance (“E&O insurance”) to cover you and your firm in the event of an error or if a client claims your firm made an error?