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Monday, October 17, 2011

Notice for Mid-Sized Investment Adviser Firms Transitioning to California State Registration

On October 7, 2011 the California Department of Corporations issued a notice to mid-sized investment adviser firms transitioning to California state registration. According the release, current investment adviser firms that are regulated under the U.S. Securities and Exchange Commission (“SEC”) that are considered mid-sized investment adviser firms (with assets under management between $25 and $100 million), are highly encouraged to file as soon as possible the appropriate state application and paperwork to transition to regulation under the State of California. The California Department of Corporations is anticipating a “high volume of transition applications, which will be reviewed in the order received.” The release also advised investment adviser firms to respond promptly to any requests for additional information and/or application revisions. The release highlighted some important dates for investment advisers to note:

  • “All SEC Investment Advisers must file an annual updating amendment before March 30, 2012, whether you have a pending State Application or have not yet submitted a [California] application. Your firm can submit the CA Application at the same time the annual updating amendment is filed.”
  • “If your firm’s application is submitted and approved prior to January 1, 2012, you may elect to either have your firm’s CA registration approved for 2011 OR request that the [California Department of Corporations] hold the completed application and approve it effective January 1, 2012.” Those firms that receive approval prior to January 1, 2012 and wish to be approved for CA registration for 2011 would be required to pay two renewal fees, once in 2011 and again in 2012.”

For additional information regarding transitioning your investment adviser firm from SEC to California state registration, please click here to register for RIA Compliance Consultants free webinar, hosted October 20, 2011 at 12:00 Central.

Monday, October 17, 2011

RIA Compliance Consultants Now on Facebook

RIA Compliance Consultants is excited to announce the addition of 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.

RIA Compliance Consultants strives to update our facebook page regulatory; our facebook page provides instant access to our regulatory alerts and compliance tips. We 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 adviser firm informed and abreast of 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.

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.

Tuesday, October 4, 2011

Broker Dealers and Investment Advisers Need to Have Policies and Procedures in Place for Social Media Use

A recent FINRA enforcement action highlights the need for broker dealers and investment advisers to implement policies and procedures for social media use. FINRA alleged the registered representative created websites related to her firm without obtaining firm approval, on several occasions she falsely stated online that she was not affiliated with any broker dealer, and she was using her Twitter account to give stock recommendations without making the necessary disclosures.   As a result of this alleged conduct, FINRA fined her $10,000 and suspended her from associating with a broker dealer for one year.

This FINRA enforcement action should serve as another reminder that if you have not already done so, it is time to implement policies and procedures that address retention of online communication, supervision of representatives’ use of social media, and how your firm will be represented online. While the US Securities and Exchange Commission (“SEC”) has not released any guidance on social media use, FINRA has issued Regulatory Notice 10-06 and Regulatory Notice 11-39 which provide guidance on using social networking sites for business communications. Although FINRA rules do not govern an investment adviser firm (which is not a FINRA member), these FINRA regulatory notices provide a good reference point in lieu of the absence of specific guidance from the SEC.

If you would like to learn how the SEC’s existing advertising rules apply to the use of social media by your investment adviser or its investment adviser representatives and best practices for supervising such social media usage, please purchase a seat for $59.95 to our upcoming webinar, “Compliance for Social Media,” on Thursday, October 13, 2011 at 12:00 p.m. Central by clicking here. If you would like to discuss how RIA Compliance Consultants, Inc. can help your registered investment advisor update its written policies and procedures with respect to social media usage, please schedule a time through our online calendar.  Simply click here and select an available time that is convenient for you.  One of our consultants will then give you a call at your selected time.

Monday, October 3, 2011

Client Feedback Webinar Survey

RIA Compliance Consultants is committed to providing quality webinars filled with informative regulatory tips and up to date compliance matters. In efforts to ensure our clients are receiving the best possible webinar presentations, we have compiled a short, six question survey that we ask you take the time to complete. Your answers will help us improve the content of the webinars we provide for your benefit. Any feedback is greatly appreciated.

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.

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.


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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.

About RIA Compliance Consultants, Inc.
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