Investment Advisors Should Prepare for Increased Regulatory Examinations

March 21, 2012

By now, registered investment advisors affected by the changes to Rule 203A-5 under the Investment Advisers Act of 1940 (“Rule 203A-5”), mid-sized investment advisor firms (firms with assets under management between $25 million and $100 million), should have begun the process of switching from registration with the U.S. Securities and Exchange Commission (“SEC”) to state registration.  Mid-sized advisor firms making the switch must keep in mind that filing the Form ADV Part 1 amendment and submitting an application for registration with the appropriate state regulatory agencies is just the first step in the process of making the switch from SEC to state registration.  A registered investment advisor must familiarize itself with the regulatory requirements of the SEC or state securities regulators, as applicable, and make sure that appropriate procedures are in place for complying with these requirements.  For a mid-sized advisor this will mean reviewing and making sure that it is complying with the appropriate state rules and regulations versus those of the SEC.

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Approaching Deadlines for Mid-Sized Investment Advisors

March 20, 2012

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act passed on July 21, 2010, the U.S. Securities and Exchange Commission (“SEC”) is required to issue rules generally requiring “mid-sized investment advisors”, which is an investment advisor with between $25 million and $100 million of regulatory assets under management, to switch from the SEC to state registration.   The intent of the new rule is to reallocate primary regulatory oversight of mid-sized investment advisors to the state securities regulators. The SEC’s new rule became effective July 21, 2011.

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RIA Compliance Consultant’s Facebook Page

March 05, 2012

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.

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Massachusetts Releases Social Media Guidance

March 02, 2012

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.

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Performance Advertising for Investment Advisers

February 22, 2012

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:

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Correction on Form U5 Leads to SEC Action for Improper Performance Claims

February 15, 2012

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.

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Compliance and Ethics Are Not Solely the Responsibility of an Investment Adviser’s CCO

February 08, 2012

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”).

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The Code of Ethics Rule

February 07, 2012

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.

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