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Friday, August 12, 2011

The “Switch” Webinar Hosted by advisors4advisors.com

Join our senior compliance consultant, Tammy Emsick, as she discusses the upcoming regulatory switch for mid-sized investment advisors in today’s advisors4advisors.com webinar. To join click here.  Note: advisors4advisors.com does require users to register as a member; however, members of advisors4advisors.com can replay any webinar 24/7.

Thursday, August 11, 2011

Does Your Investment Adviser Firm Have a Written Information Security Plan?

Based upon the formal and informal expectations of state and federal securities regulators, every investment adviser should consider developing a written information security plan.  Rule 30 of Regulation S-P issued by the U.S. Securities and Exchange Commission (“SEC”) requires SEC registered investment advisers to adopt written policies and procedures designed to ensure the security and confidentiality of client information.  The enforcement of Rule 30 was highlighted by a recent SEC enforcement action against an investment adviser who had their trading system hacked.  A year before the hacking occurred, an internal audit showed that the adviser did not utilize strong passwords.  When the hacking occurred a year later, the investment adviser had taken no action to increase password security.  Thus, the adviser was fined $275,000 for failing to safeguard customer information.

While state registered investment adviser firms are not subject to Regulation S-P, the Federal Trade Commission (“FTC”) has enacted Safeguard Rules which are similar to Regulation S-P and apply to state registered investment advisers.  In addition some states have enacted their own requirements.  In 2010, the Commonwealth of Massachusetts enacted detailed and comprehensive laws to prevent client data security breaches.  These requirements apply to all investment advisers who have clients who are residents of Massachusetts.  Further, the State of Nevada has enacted information encryption laws that apply to all investment advisers located within the state.  As legislators and regulators continue to make protecting customer information a priority, investment adviser firms need to enact comprehensive information security plans to remain compliant with regulatory requirements.

Some specific information security safeguards that should be included in any plan are utilizing strong alphanumeric passwords to access firm computers, securing wireless connections and smart phones, encrypting laptops and external hard drives and physically locking client files when they’re not being used.  A comprehensive information security plan should also designate an individual to be in charge of information security, identify reasonably foreseeable risks, implement safeguards to control those risks, train employees on how to protect client information, audit whether safeguards have been implemented and are effective, and outline actions to be taken in the event of a security breach.

If your investment adviser needs help developing and implementing a written information security plan or would like help reviewing an existing plan, click here to schedule a time to speak with one of our compliance consultants.

Wednesday, August 10, 2011

Connect with the Facebook Page of RIA Compliance Consultants

RIA Compliance Consultants has set up a Facebook page (www.facebook.com/riacompliance) to maximize our ability to communicate with investment advisors.

We are posting items of interest, regulatory alerts, best practice tips, complimentary webinars and free forms to investment advisors on the page as they become available. To stay up to date with our latest posts on investment advisor compliance, go to the page and click on the “Like”.

Please understand that clicking the “Like” button does not constitute and should not be considered a testimonial for or an endorsement of RIA Compliance Consultants, any associated person, or our services; the clicking of the “Like” button is merely a mechanism to circulate our Facebook page.

Tuesday, August 9, 2011

Do You Understand the Responsibilities Related to Serving as an Investment Adviser’s Chief Compliance Officer?

Your investment adviser’s chief compliance officer (“CCO”) must be knowledgeable regarding the Investment Advisers Act of 1940, competent in regard to administering your compliance program and empowered to enforce compliance with your policies and procedures.

Your investment adviser’s CCO is responsible for administering your investment advisers’ policies and procedures. This does not necessarily mean that the CCO has to be the sole party responsible for performing all the investment adviser’s supervisory functions.  In order to properly delegate some of the supervisory functions, an investment adviser’s CCO must: (i) adopt procedures that are reasonably designed to prevent and detect violations of the federal securities laws; (ii) ensure that a system is in place for applying the procedures; and (iii) make sure that all supervisory responsibilities are reasonably discharged in accordance with the investment adviser’s written policies and procedures in such a manner that the investment adviser’s CCO has no reason to believe that the supervised persons are not complying with the procedures.  It is the ultimate duty of the CCO to develop, implement, maintain, and enforce your investment adviser’s written compliance policies and procedures. The CCO does not need to be responsible for all policies and procedures of your investment adviser firm; however, your firm’s CCO needs to understand Rule 206(4)-7 well enough to know what his/her responsibilities are under the rule.

“Rule 206(4)-7 requires each adviser registered with the Commission to designate a chief compliance officer to administer its compliance policies and procedures. An adviser’s chief compliance officer should be competent and knowledgeable regarding the Advisers Act and should be empowered with full responsibility and authority to develop and enforce appropriate policies and procedures for the firm. Thus, the compliance officer should have a position of sufficient seniority and authority within the organization to compel others to adhere to the compliance policies and procedures.”

-Securities and Exchange Commission (full text here)

RIA Compliance Consultants is hosting a webinar, “Basic Training for a CCO,” on Thursday, August 18, 2011.  This webinar will provide valuable information and tips regarding ongoing responsibilities for your investment adviser’s chief compliance officer in order to avoid violating SEC Rule 206(4)-7.

RIA Compliance Consultants is a team of industry experienced professionals dedicated to working with investment advisers who are also committed to implementing good compliance and risk management strategies. By working together, RIA Compliance Consultants helps investment advisers navigate the maze of investment adviser compliance regulations and find the best ways to satisfy their obligations.

Webinar: Basic Training for a CCO

Date: Thursday, August 18, 2011

Time:  12:00 p.m. to 1:00 p.m. Central

Cost: $59.95

To register, click here.

Tuesday, August 9, 2011

SEC Director Discusses the New Whistleblower Program and the Role Internal Investigations Will Play

In a recent speech, Robert Khuzami, the Director of the Division of Enforcement for the U.S. Securities and Exchange Commission (“SEC”), discussed the SEC’s new whistleblower program and the role internal investigations will play.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the 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 SEC Enforcement Director stated that the purpose of this whistleblower program is to “incentivize insiders and others who possess useful information regarding unlawful conduct to come forward early and assist the SEC with identifying and bringing enforcement actions against companies and individuals that have violated the securities laws.”

One issue that has received a lot of attention is whether potential whistleblowers would be required to first file their complaint with their employer or the company in question.  The SEC has decided against such a requirement.  According to Khuzami, the SEC determined that making internal reporting a prerequisite to filing a complaint with the SEC would “place an undue and additional burden on the whistleblower…and likely would deter others from coming forward.”  The SEC Enforcement Director cited “pump and dump” schemes run by boiler room operations and Ponzi schemes as examples of corrupt organizations where internal reporting would be futile.

However, the SEC did structure the rules so that whistleblowers would be incentivized to report complaints to internal compliance programs.  The amount awarded to a whistleblower may be increased if the whistleblower files a complaint with the company’s internal compliance office.  Also, if the whistleblower originally files the complaint with the company, any information provided by the company to the SEC will be attributed to the whistleblower.  On the other hand, interference with internal investigations can decrease the amount awarded to a whistleblower.

To access the full transcript of the SEC Enforcement Director’s speech, click here.

RIA Compliance Consultants strongly recommends that all investment adviser firms implement a system to handle internal whistleblower complaints. If your investment adviser firm needs help implementing complaint procedures or would like help reviewing your existing system, any of our compliance consultants would be happy to assist your investment adviser.

Thursday, August 4, 2011

GAO Studies Feasibility of SRO for Investment Advisers to Private Funds

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), the U.S. Government Accountability Office (“GAO”) recently released a study regarding the feasibility of forming a self-regulatory organization (“SRO”) to oversee investment advisers to private funds.   Click here for a copy of the study.

The GAO found that the general consensus is that “the formation of a private fund adviser SRO would require legislation” and would face challenges such as raising start-up capital and reaching agreement upon fees and structure.  The GAO noted that the advantages of a private fund adviser SRO included supplementing SEC’s oversight and capacity challenges; however, the GAO explained that even with a private fund adviser SRO, the SEC would still have to examine the majority of investment advisers, which do not manage private funds, and there could be regulatory gaps depending upon whether the investment adviser manages a private fund.

If your firm is a private fund adviser and needs assistance registering with the U.S. Securities and Exchange Commission (“SEC”) as investment adviser in accordance with the new requirements of the Dodd-Frank Act, please click  here to schedule an appointment with one of our senior compliance consultants to discuss our investment adviser registration services.

Tuesday, August 2, 2011

Frequently Asked Questions About the Switch of Mid-Sized Investment Advisors from the SEC to State Securities Regulators

Click here to view our answers to frequently asked questions about the switch of mid-sized investment advisors from the SEC to state securities regulators.

Monday, July 25, 2011

Investment Adviser Compliance Tip – Supervising Personal Securities Transactions

When establishing a compliance program, an investment adviser is required to review and monitor the personal securities transactions by “access persons” in order to prevent inappropriate trading.

In order to supervise personal securities transactions, the first question is determining which individuals are access persons.  The U.S. Securities and Exchange Commission (“SEC”) defines an “access person” as any supervised person:

(A) Who has access to nonpublic information regarding any clients’ purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund, or

(B) Who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic.

In essence, these individuals are considered access persons by the SEC because they are in the position to inappropriately utilize client information.  This typically includes all of the investment adviser’s employees in addition to its directors, officers, investment adviser representatives (IARs) and any employees of the IARs (if IARs are independent contractors).

Once an investment adviser has determined its access persons, the next step is to establish a procedure for supervising the personal securities transactions of those identified as access persons. An access person is required to report his or her personal securities holdings (existing securities positions) to the investment adviser upon becoming an access person and on an annual basis thereafter. In addition, each access person needs to report his or her personal securities transactions (direct and indirect beneficial ownership) within 30 days of the end of each calendar quarter. All private placements and initial public offering of the access person must be pre-approved by your investment adviser.

RIA Compliance Consultants recommends that these personal securities transactions and holdings be placed in a database so that each access person’s records may be cross-referenced easily against the transactions of the investment advisory clients. An investment adviser should review these personal securities transactions for inappropriate conduct like front-running, scalping, insider trading or other misuses of confidential client information.  Also, depending on the investment adviser’s specific procedures, the investment adviser’s review should focus upon whether there are violations of any restricted lists, black-out periods, or other conditions placed on access person’s personal trading activities or holdings.

Finally, the investment adviser must maintain the following records for the last five years: lists of its access persons; each quarterly personal securities transactions report and initial and annual personal securities holdings report made by an access person; the review and approval of each personal securities transactions or holdings report; any violation and corrective action; and any decision and supporting reasons to approve any initial public offering or private placement for an access person.

If you would like to purchase a sample policy and procedure for supervising personal securities transactions, please contact us at your convenience.

Thursday, July 21, 2011

SEC Publishes Frequently Asked Questions Regarding Switch of “Mid-Size” Investment Advisers

The U.S. Securities and Exchange Commission (“SEC”) posted a webpage with frequently asked questions regarding the switch of “mid-size” investment adviser ($25 million to $100 million of assets under management) from the SEC to state securities regulator(s).

Although the initial information about the “mid-size” investment adviser switch on this webpage is somewhat limited, there are at least two new pieces of information worthy of discussion.

First, the SEC only identifies New York and Wyoming as the states where a “mid-size” investment adviser would not be subject to examination by a state securities regulator.  (Under the SEC’s new switch rule, a “mid-size” investment adviser with a principal place of business in a state that does not require the investment advisor to register or does not examine investment advisers is required to remain registered with the SEC.)   This appears to be contrary to the comments of the SEC staff during the Commission’s open meeting on the final rule a few weeks ago and the adopting release dated June 22, 2011 when Minnesota was also mentioned by SEC staff as a state where a “mid-size” investment adviser would not be subject to an examination by a securities regulator.   As result, it currently appears as if a “mid-size” investment adviser with a principal place of business in Minnesota will be subject to the regulator switch from the SEC and be required to register as an investment adviser with the State of Minnesota Department of Commerce.

Second, although not well publicized by the securities industry press, the SEC has made several changes to the Form ADV Part 1.  The Form ADV Part 1 items have been amended to reflect the new investment adviser registration requirements.  Additionally, there are several items that have been revised that are not related to the new investment adviser registration requirements for mid-size investment advisers.  When filing an amendment to the Form ADV Part 1 after the new updated form is released on IARD, all (even if not a “mid-size”) investment advisers will need to review the entire Form ADV Part 1 and provide the additional information requested.  It is expected that the IARD will be able to accept filings of the revised Form ADV Part 1 by January 1, 2012.  Click here to view a PDF file of the amended Form ADV Part 1.

If your firm falls into the definition of a “mid-size” investment adviser, RIA Compliance Consultants is presenting a complimentary webinar, “Understanding and Preparing for the ‘Switch’ of Mid-Sized Advisors,” on Wednesday, August 25, 2011 at 12:00 p.m. Central.  This webinar will provide an overview of the SEC’s new switch rule and discuss timing for any new requirements under this rule.  During this webinar, we will also discuss which investment advisers will be covered by these changes and what actions these investment advisers will need to take in order to comply with the new requirements to switch from SEC to state registration.  If you would like to attend this complimentary webinar, click here to register.

Monday, July 18, 2011

The “Switch” for Mid-Size Investment Advisers from SEC to State Registration

Click here for the abbreviated (9 minutes) version of our video about the new SEC rule switching certain mid-size ($25 million – $100 million of assets under management) investment advisers from SEC to state registration.  For the full (1 hour) version of this video, please click here.

In this abbreviated version of our video, our senior compliance consultant discusses certain key requirements under the SEC’s new switch rule and the deadlines for mid-size investment advisers.

If your investment adviser falls into the SEC’s definition of a mid-size investment adviser, RIA Compliance Consultants is able to assist you with the transition from SEC to state registration.  If you would like to discuss engaging RIA Compliance Consultants, please click here to schedule a time for one of our consultants to call you.


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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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