Monthly Archives

March 2017

SEC IM Guidance Update 2017-01 Inadvertent Custody: Advisory Contract versus Custodian Contract Authority

By | New in Compliance, SEC

March 9, 2017:  The law of unintended consequences has struck again … this time its target is the investment advisory community wherein advisers who eschew custody and indeed have written policies which prohibit custody, may in fact retain custody and therefore be noncompliant with U.S. Securities and Exchange Commission (“SEC”) Rule 206(4)-2 pursuant to the Investment Advisers Act of 1940, as amended (“Advisers Act”).

The occurrence of unintended custody is a process wherein the custodian and the client, without adviser participation or direct knowledge, execute a custodian agreement which conveys to the adviser access to client funds. Advisers prohibiting client custody under this scenario are now deemed to have client custody.  If you are such an adviser, the SEC wants you to know that your firm has the obligation to fully comply with Custody Rule 206(4)-2. Read More

SEC IM Guidance Update 2017-02 Robo-Adviser: The New Model on the Block

By | New in Compliance, SEC

March 3, 2017:  The evolution of investment adviser business models to reflect “robo-adviser” services represents a fast-growing trend within the advisory industry.  Initially perceived as a service offering directed to the millennial target market, in an era of rising competition in the asset management industry, this business model is now perceived as having the real potential to be a “win-win” for both advisers and retail investors across the board. The robo-model is rapidly gaining traction with the adviser industry as it provides the means to arrest and possibly reverse compressed fee schedules while introducing significant efficiencies in the business of marketing, developing, and executing invest advice.

As always, there is a catch to the happy-ending, in this case, the SEC and its oversight of all registered investment advisers.  The SEC has been monitoring and engaging with robo-advisers to evaluate how robo-advisers meet their compliance obligations under the Investment Advisers Act.  Additionally, the Commission held a “Fintech Forum” in 2016 that included an informative panel on the robo-adviser evolution. Collectively, these efforts have informed the SEC to the point where the Commission was comfortable issuing IM Guidance Update 2017-02 “Robo-Advisers” in late February 2017, focusing upon the robo-adviser business model and the unique compliance challenges it places upon registered advisers. Read More