The U.S. Securities and Exchange Commission (“SEC”) recently settled with an investment adviser firm which allegedly had improperly refused to refund $131,000 in unearned advisory fees to 63 departing investment advisory clients. The SEC censured the investment adviser firm and imposed a $100,000 civil penalty on it. The SEC also imposed a $50,000 penalty on the investment adviser firm’s majority owner.
Recently, there has been a wave of legislation and regulatory action focused on senior investor protections. The U.S. Congress just passed the Senior Safe Act, a law which provides legal immunity to an investment adviser, if the investment adviser meets certain requirements, for the act of reporting suspected senior financial exploitation. Both the U.S. Securities and Exchange Commission (“SEC”) and FINRA have had a senior investor exam initiative going on since 2014. In addition, almost every state has a law pertaining to senior exploitation.
State and federal legislators have recognized that employees of investment adviser firms are likely to be one of the first people to see signs of financial exploitation in their senior and vulnerable clients. This has led to nearly every state passing legislation on this topic, and now the federal government has as well.
The U.S. Securities and Exchange Commission (“SEC”) has charged 13 different registered investment adviser firms which advised private funds for failing to properly file reports with the SEC.
On June 4, 2018 the SEC (Securities and Exchange Commission) issued a press release announcing the imposition of an $8 million civil penalty against an investment adviser in New York for failing to disclose conflicts of interest to its clients. The SEC also announced the filing of a litigated action against two investment adviser representatives of the firm for misleading clients and concealing material conflicts of interest. The investment adviser neglected to disclose agreements with product and service providers that led to the investment adviser receiving undisclosed compensation. The Director of the SEC’s New York Regional Office said, “Investment advisers have an obligation to disclose direct and indirect financial incentives to clients.” Click here to read the SEC’s press release.
Over the past several years, there has been a significant amount of movement within the financial services industry to develop policies, rules, and regulations that help safe guard the senior investor community. In 2014, the U.S. Securities and Exchange Commission (“SEC”), in coordination with FINRA, released a report on a recent senior investor initiative they had conducted. The exams that comprised the report focused on issues of suitability of investments for seniors, disclosures, account documentation, diminished capacity, and senior financial exploitation. This initiative showed that the SEC was taking an interest in senior protections and that investment advisers must follow different policies and procedures when recommending securities to and working with senior clients.
On May 24, 2018 Pres. Trump signed the Senior Safe Act. The Senior Safe Act encourages financial services firms such as investment adviser firms to train employees to spot elder abuse, while granting limited immunity to individuals at financial institutions who report such abuse to law enforcement or regulators in accordance with the Act. The banking reform package of which the Senior Safe Act is part, formally known as S. 2155 or the Economic Growth, Regulatory Relief and Consumer Protection Act, modifies provisions of the Dodd-Frank Act.
On April 18, 2018, the Securities and Exchange Commission (SEC) voted to propose rules and interpretations that, among other things, are designed to enhance the transparency of investor’s relationships with investment advisers. Two of the SEC’s proposals that pertain to investment advisers are:
On April 12, 2018, the Office of Compliance Inspections and Examinations (“OCIE”) of U.S. Securities and Exchange Commission (“SEC”) released a Risk Alert, “Overview of the Most Frequent Advisory Fee and Expense Compliance Issues Identified in Examinations of Investment Advisers.” The risk alert provides a list of compliance issues frequently identified in OCIE examination deficiency letters relating to fees and expenses charged by SEC registered investment advisers. Click here to read the SEC’s Risk Alert.