RIA Compliance Consultants
About Us
Our Services
  2016 IARD Renewal Service and ADV Annual Amendment Service
Turn-Key IA Registration
Annual Compliance Programs
Switch from SEC to State
Code of Ethics
Compliance Tools
  RIA Express
Upcoming Webinars
Recorded Webinars
  Online Store
Navigating the Regulatory Maze
Frequently Asked Questions
  IA Registration
Registration Costs
Series 65 Exam
Form U4
Private Fund Adviser
Form PF
Switch from SEC to State
Written Supervisory Procedures
Codes of Ethics
Wrap Fee Brochures
  Form 13F
Compliance Tips
  State IA Registration
Form ADV Background
Form ADV Drafting
SEC Examination
Published Articles
Contact Us

Online Invoice Payments
Newsletter Signup
Speaker Request
Job Openings
Search Our Site
(877) 345-4034
Tuesday, September 27, 2011

New SEC Rule Requires “Large Traders” to Make Additional Filing

The U.S. Securities and Exchange Commission (“SEC”) recently adopted Rule 13h-1 that would require “large traders” to file new Form 13H with the SEC through its Electronic Data Gathering, Analysis and Retrieval (EDGAR) System.

Rule 13h-1 defines “large trader” as any person or entity, including investment advisers, that “directly or indirectly, including through other persons controlled by such person, exercises investment discretion over one or more accounts and effects transactions for the purchase or sale of any [exchange-listed] security for or on behalf of such accounts, by or through one or more registered broker-dealers, in an aggregate amount equal to or greater than” either 2 million shares or $20 million in a single day; or 20 million shares or $200 million in a calendar month.  This means that any entity that places trades that qualify as “large trades” and has investment discretion over an account, not the account holder, will have to file Form 13H.  There are a limited number of exceptions to the definition of “large trader” including trades related to gifts, distributions of estates, court-ordered transactions, exercises or assignments of options contracts, and the creation of ETFs.

The information requested by Form 13H includes basic identifying information, the name of the organization and any affiliates, an organization chart, a description of the nature business, a list of forms the business filed with the SEC, the names of each general partner and execute officers, directors or trustees, and a list of broker-dealers where the trader has an account.  The Form 13H will be kept confidential by the SEC and will be exempt from Freedom of Information Act requests.

After Form 13H has been submitted to the SEC, the SEC will assign the trader an identification number known as an LTID.  This LTID must be given to any registered broker-dealer where the trader maintains an account.  The broker-dealer is required to maintain certain records for each transaction for these accounts and upon request must provide that information to the SEC.

Rule 13h-1 comes into effect on October 3, 2011 and organizations that will be required to file Form 13H have until December 1, 2011 to do so.  If an organization has not recently placed any trades that would require it to register as a “large trader”, it can file a Form 13H now or it can wait and file the Form 13H within ten days of qualifying as a “large trader.”  After making an initial Form 13H filing, “large traders” must continue to file Form 13H annually.  Further, if any information contained within the form becomes inaccurate or out-dated, an amended filing must be made by the end of the calendar quarter.  If an organization has filed a Form 13H, but during the previous calendar year did not place a trade that qualified as a “large trade,” it can make a filing to request “inactive” status and re-activate whenever necessary.

Tuesday, September 27, 2011

The Use of Social Media Sites Can Create Compliance Problems for Registered Investment Advisers

Social media sites such as Facebook, Twitter, and LinkedIn can be useful business tools for investment advisers.  However, there are several compliance issues that social media sites present.

While the US Securities and Exchange Commission (“SEC”) has not released any specific rules or guidance on the topic, there are several existing rules that investment advisers need to keep in mind when using social media sites.  Information posted online by an adviser is considered an advertisement and therefore must comply with all advertising regulations, including record retention which can be difficult for an ever changing site.  Further, comments posted by a client could be considered a testimonial, which are banned by Rule 206(4)-1 of the Investment Advisers Act of 1940.

In addition to these issues, each site presents its own compliance challenge.  For example, LinkedIn allows users to make recommendations for other users.  While these recommendations could be useful in promoting your business, they are considered client testimonials which are prohibited by Rule 206(4)-1.  Another example is the “Like” function on Facebook.  Some commentators are concerned that if a client “Likes” an investment adviser’s page, the regulator might consider this as a client testimonial and not a method for merely accessing or circulating the Facebook page.

To address these issues, on October 13, 2011 RIA Compliance Consultants will be hosting a webinar, “Compliance for Social Media Sites.”  At this webinar, one of our compliance consultants will provide guidance regarding record retention and developing policies and procedures relating to social media websites.  You can register for this webinar by clicking here.

Thursday, September 22, 2011

Massachusetts Investigating Social Media Use By Investment Advisers

The Massachusetts Securities Division recently sent out a survey to track use of social media by investment advisory firms for business purposes.  The survey not only asked about social media use but asked whether investment advisory firms have supervisory policies and procedures in place for social media supervision and record retention.

The results of the survey showed that 44% of investment advisers currently use social media for business purposes and that 10% of the advisers who do not currently use social media plan to start using it within the next 12 months.  More importantly, the results showed that many of the investment advisers currently using social media do not have the proper policies and procedures in place.  As a result of this survey, the Massachusetts Securities Division “believes that additional regulatory guidance concerning the use of social media would be appropriate” and is forming a “Working Group” to develop social media compliance guidelines for investment advisors.

To comply with current regulatory requirements, investment advisors who use social media need to have policies and procedures in place for employee supervision and record retention of content posted online through social media sites.  On Thursday, October 13, 2011, RIA Compliance Consultants will be conducting a webinar, “Compliance for Social Media Sites.”  During this webinar we will be discussing the current regulatory requirements related to social media use and how to develop policies and procedures to comply with these requirements.  You can purchase a seat for $59.95 for this webinar by clicking here.

Thursday, September 22, 2011

Bank of America Whistleblower Judgment Highlights the Need for Investment Advisers to Have Whistleblower Policies and Procedures in Place

The Department of Labor recently required Bank of America to rehire and pay $930,000 to an employee who was fired for whistleblowing.  The employee had been leading an internal investigation looking into wire, mail and bank fraud at Countrywide Financial, which merged with Bank of America in 2008.  Shortly after the two companies merged, the employee was fired.  The employee then filed a Sarbanes-Oxley claim alleging she was fired due to the internal investigation.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the U.S. Securities and Exchange Commission (“SEC”) has created a whistleblower program that allows the SEC to reward whistleblowers by giving them up to 30% of any recovery above $1 million.  The program also prohibits employers from retaliating against any employees who become whistleblowers.  As seen in the Bank of America case, if retaliation does occur, the employer may be required to rehire the employee and to provide damages in the amount of double back pay.

The SEC program is also structured so that whistleblowers would be incentivized to report complaints to internal compliance programs.  So, all investment advisers need to update their existing policies and procedures to address the handling of whistleblower complaints.

RIA Compliance Consultants is currently offering an update to our Written Supervisory Procedures.  We have created or updated 21 different sections for the Code of Ethics and Written Supervisory Procedures to reflect recent changes to the securities laws and regulations.  Along with handling whistleblower complaints, these updated policies and procedures address topics such as social media use, information security, and client documents and disclosures.   Included with these updates is a package of Sample Forms that every investment adviser should be using to meet the books and records requirements.  Contact one of our compliance consultants today to order your copy of our whistleblower policy along with the rest of our updated policies and procedures.

Wednesday, September 21, 2011

DOL to Seek More Industry Input before Imposing Fiduciary Rule

On Monday, the U.S. Labor Department (“DOL”) announced that it is delaying its fiduciary rule proposal until next year.  The DOL is seeking to expand the definition of fiduciary under the Employee Retirement Income Security Act (“ERISA”) to include everyone who gives retirement advice.  Expanding the definition of fiduciary would mean that everyone who gives retirement advice would always have to act in the best interest of the client.

The DOL is delaying this proposal to “allow an opportunity for more input on the rule.”  One of the things the DOL will be looking at is how this new fiduciary standard will impact the fee practices of investment advisers and broker-dealers.

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

Sunday, September 18, 2011

SEC’s New Performance Fee Rule Effective Sept. 19, 2011

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the U.S. Securities and Exchange Commission (“SEC”) recently amended Rule 205-3 of the Investment Advisers Act of 1940, which exempts a “qualified client” from the general prohibition against an investment advisor charging a fee based upon the share of capital gains or capital appreciation (also known as a “performance fee”).

Effective today, September 19, 2011, the amended SEC Rule 205-3 only allows an investment advisor to charge performance fees if the client has at least $1 million (raised from $750,000) in assets under the management with the investment advisor or if the investment advisor believes that the client has a net worth of more than $2 million (raised from $1.5 million).  Additionally, the amended SEC rule specifies that the client’s personal residence and any debt associated therewith are to be excluded when determining the net worth of the client, but should include assets held jointly with a spouse.  For the full details of the amended SEC rule, please click here.

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

Friday, September 16, 2011

Examining the House Financial Services Committee’s Investment Adviser SRO Draft Bill

Prior to conducting Tuesday’s hearing on whether to form a self-regulatory organization (“SRO”) for investment advisers, the Chairman of the House Financial Services Committee, Rep. Spencer Bachus posted a draft bill on the Committee’s website.  The draft bill would form a self-regulatory organization for investment advisers under what would be known as the “Investment Adviser Oversight Act of 2011.”

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.  While the witnesses and Congressmen present at Tuesday’s hearing discussed whether FINRA should serve as the SRO for investment advisers, FINRA is not referenced in this draft bill.

According to the draft bill, investment advisers currently registered with the SEC or a state securities regulator would be required to join the SRO.  Exceptions to the membership requirement would be granted to investment advisers who primarily advise mutual funds, certain charitable organizations and pension funds, foreign clients, private funds, and venture capital funds.  An exception would also be granted to advisers with less than $25 million in assets under management.  However, investment advisers that are registered as broker-dealers or any investment advisers controlled by one or more registered representatives of a broker-dealer could not rely on these exceptions, and thus will be required to join the SRO.

The purpose of creating this self-regulatory organization would be to conduct regulatory examinations more frequently than currently performed by the SEC.  According to the SEC only 9% of SEC registered investment advisers were subject to a regulatory exam versus 40% for broker-dealers.

The SEC has stated that it does not have the funding necessary to conduct more frequent regulatory exams.  However, on Wednesday September 15, during a House Financial Services Committee hearing, Rep. Bachus stated that increasing SEC funding is “necessary as part of the reform process.” Also on Wednesday, the Senate Appropriations Committee approved a 19% increase in the SEC’s budget for 2012.  However, this measure still has to pass the entire Senate as well as the House of Representatives.

If the SEC receives additional funding in 2012, it may be able to conduct more frequent examinations, which could alleviate the need for an investment adviser SRO.  Stay tuned to RIA Compliance Consultants as we will continue to follow this issue.

Tuesday, September 13, 2011

Investment Advisers Should Expect More Frequent Regulatory Exams

With the upcoming regulatory switch of mid-sized investment advisers from the U.S. Securities and Exchange Commission (“SEC”) to state securities regulators and Congress considering whether to authorize a self-regulatory organization (“SRO”) for investment advisers, we believe that the frequency of investment adviser examinations is going to rise.

During a regulatory exam, your investment adviser firm is required to produce its books and records and the regulators will conduct interviews with your firm’s management and employees.  The purpose of these exams is to test your investment adviser’s compliance with the applicable securities regulations and to ensure client assets are properly protected.  According to the SEC, the most common issues found during exams are the “misappropriation of client funds, conflicts of interest, breach of fiduciary duty, misrepresentations to investors, valuation issues, offering unregistered/fraudulent securities, and material compliance program deficiencies and books and records concerns.”

To address these issues, RIA Compliance consultants is hosting a webinar, “Preparing for a Regulatory Exam,” on Thursday, September 15, 2011 from 12:00 p.m. to 1:00 p.m. Central.  During this webinar, RIA Compliance Consultants will provide an overview of the regulatory examination process. One of our consultants will discuss the different types of examinations; the information and documentation that will likely be requested during an examination; and some of the common regulatory deficiencies found during the examination process. We will also provide you with some general guidance and tips for preparing for and getting through the examination.  To register for this webinar, click here.

Tuesday, September 13, 2011

Congress Holds Hearing Concerning Investment Adviser SRO

Today, September 13, the House Committee on Financial Services conducted a hearing to discuss forming a self-regulatory organization (“SRO”) for investment advisers.  There were three oversight options discussed,  (1) having the U.S. Securities and Exchange Commission (“SEC”) charge a user fee to provide funds for more frequent regulatory examinations; (2) creating an independent SRO; and (3) giving FINRA the authority to serve as the investment adviser SRO.  Eight individuals testified in front of the House Committee.  The following chart shows which of the three approaches the individuals thought would be most effective.

Name Organizaiton/Employer SEC User Fee Independent SRO FINRA as SRO
William Dwyer Chairman, Financial Services Institue and Managing Director/President of LPL Financial, LLC X
Ken Ehinger President and CEO, M Holdings Securities, Inc., on behalf of the Association for Advance Life Underwriting X
Terry Headly President, National Association of Insurance and Financial Advisors X
Steve Irwin Commissioner, Pennsylvania Securities Commission, on behalf of NASAA X
Richard Ketchum Chairman and CEO, FINRA X
Barbara Roper Director of Investor Protection, Consumer Federation of America X* X*
John Taft CEO, RBC Wealth Management, on behalf of the Securities Industry and Financial Markets Association X
David Tittsworth Executive Director and Executie VP, Investment Adviser Association X

*Barbara Roper stated that the best option would be to supply the SEC with the appropriate funding to improve investment oversight and to increase the frequency of regulatory examinations.  However, she felt this option would not be achieved so she supported forming an independent SRO.

Based upon the testimony of the witnesses and the Congressmen conducting the hearing, the most popular choice is having FINRA serve as the investment adviser SRO.  Those advocating for this approach felt it would be the most effective and cost efficient approach.  However, those advocating for an SEC user fee felt that creating an investment adviser SRO would create an additional layer of bureaucracy.  They also felt that SROs create conflicts of interest because they are run by their members and are accountable to their members, not the general public.

For more information on the hearing and to view the full remarks of each witness, click here.

Monday, September 12, 2011

Congress to Hold Hearing To Discuss Creating an SRO for Investment Advisers

On Tuesday, September 13 the House Committee on Financial Services will conduct a hearing to discuss forming a self-regulatory organization (“SRO”) for investment advisers.  The hearing will take place at 10 AM ET and is entitled “Ensuring Appropriate Regulatory Oversight of Broker-Dealers and Legislative Proposals to Improve Investment Adviser Oversight.”  The Committee has already posted a draft bill on its website.  This bill would amend the Investment Advisers Act of 1940 to create an unnamed SRO for investment advisers.  The following people will testify during this hearing:

  • Mr. William E. Dwyer III, Chairman, Financial Services Institute
  • Mr. Ken Ehinger, President and Chief Executive Officer, M Holdings Securities, Inc., on behalf of the Association for Advanced Life Underwriting
  • Mr. Terry Headley, President, National Association of Insurance and Financial Advisors
  • Mr. Steven D. Irwin, Commissioner, Pennsylvania Securities Commission, on behalf of the North American Securities Administrators Association
  • Mr. Richard G. Ketchum, Chairman and Chief Executive Officer, Financial Industry Regulatory Authority
  • Ms. Barbara Roper, Director of Investor Protection, Consumer Federation of America
  • Mr. John G. Taft, Chief Executive Officer, RBC Wealth Management, on behalf of the Securities Industry and Financial Markets Association
  • Mr. David Tittsworth, Executive Director/Executive Vice President, Investment Adviser Association

At the hearing the Committee will also discuss whether to impose a fiduciary standard on everyone who offers retail investment advice.  Imposing this fiduciary standard would require investment professional to always act in the best interest of their clients.  This means that broker dealers would be held to the same fiduciary standards that investment advisers are currently held to.

Again, the hearing will begin at 10 AM ET on Tuesday, September 13.  If you would like to watch the hearing, click here to access the Committee’s webpage for this hearing.


Online Store for Compliance Tools, Manuals, Forms & Webinars for Your RIA

Turnkey Investment Advisor Registration Service

Starting an RIA?

Utilize our expertise to leverage your time while growing your new business.

Request a Proposal

Annual Investment Advisor Compliance Program

Need help implementing an ongoing and comprehensive compliance program?

Outsource the heavy lifting by partnering with industry experienced professionals.

Request a Proposal


Subscribe to this Feed

Easy-to-Read Instructions

* 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.

About RIA Compliance Consultants, Inc.
Our Services
   2016 IARD Renewal Service and ADV Annual Amendment Service
   Investment Advisor Registration Service
  Annual Compliance Programs
  Switch an IA from SEC to State
  Code of Ethics
Compliance Tips
  Tips for Registering as a State Investment Advisor
  Form ADV Background
  Form ADV Drafting Tips
  SEC Exam Tips
Compliance Tools
  RIA Express
  Upcoming Webinars
  Recorded Webinars
  Online Store
Frequently Asked Questions
   Investment Advisor Registration FAQs
   Registration Costs
  Series 65 Examination FAQs
  Form U4 FAQs
  Private Fund Advisers Registering as Investment Advisers with the SEC FAQs
  Form PF FAQs
  Switch from SEC to State FAQs
  Solicitor Referral Arrangements FAQs
  Written Supervisory Procedures
  Codes of Ethics
  Wrap Fee Brochures
  Form 13F, Schedule 13D & Schedule 13G FAQs
Published Articles
Contact RIA Compliance Consultants, Inc.
Online Invoice Payments
Speaker Request
Investment Advisor Resources
Job Openings
Site Map
Link to RIA Compliance Consultants, Inc.