Over the past month, new guidance, and resources on the topics of custody, investment adviser compensation, and Form ADV disclosures have been issued. Below we highlight each topic and cite the source for easy reference. We welcome questions from our clients relative to these important matters.Read More
Over the past month, the SEC has issued guidance on the topics of proxy voting, principal and agency cross trading, and Form CRS. Below we highlight each regulatory update and present an action plan for investment advisers to address the SEC’s guidance.
SEC Releases Guidance to Clarify Investment Advisers’
Proxy Voting Responsibilities
Regulatory scrutiny of investment adviser reliance upon proxy advisory firms (“PAFs”) has again become evident with the release of new Commission guidance. This ongoing reliance on PAFs in conjunction with SEC concerns pertaining to adviser adherence to the fiduciary standard of care when voting client proxies underscores the essence of the SEC’s concerns. At an open meeting held on August 21, 2019, SEC Commissioners issued guidance (hereafter referred to as “Guidance”), by a 3-2 vote, to assist investment advisers when conducting proxy votes on behalf of clients. Indeed, many in the investment adviser industry argue that this guidance is intended to significantly reverse adviser reliance on PAF services.Read More
On July 23, 2019, the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert to share its findings related to a series of examinations conducted to assess the oversight practices of registered investment advisers that previously employed, or currently employ, any individual with a history of disciplinary events. These examinations, collectively referred to as the “Supervision Initiative” entailed examinations of over 50 registrants over the course of 2017. Registrants collectively managed approximately $50 billion in assets for nearly 220,000 clients, the vast majority of whom were retail investors. Advisers were identified for examination through a review of information about disciplinary events and other legal actions involving supervised persons, including legal actions that are not required to be reported on Form ADV (e.g., private civil actions).Read More
SEC rules package published June 5, 2019
This past June, the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) adopted two rules and issued two interpretations, each of which pertain to standard of conduct requirements for broker-dealers and investment advisers. The rules package addresses the following aspects of broker/dealer and investment adviser client disclosures and registrant comportment to the fiduciary standard of care:
Regulation Best Interest (Regulation BI), a new rule imposing a “best interest” standard of conduct on broker-dealers making recommendations to retail clients (compliance date: June 30, 2020)Read More
issued May 23, 2019
The U.S. Securities and Exchange Commission (“SEC” or the “Commission”) has again commenced a series of cybersecurity examinations of registered investment advisers. The SEC distributed numerous request letters in May to gather registrant information pertaining to vendor diligence and oversight of cloud providers. The Commission is scrutinizing adviser policies and procedures which relate to the identification and monitoring of risks attendant to client information stored on third party vendor platforms. In general, advisers have a fiduciary duty and regulatory obligation pursuant to privacy regulations and cybersecurity guidance to ensure that non-public client information residing on third-party platforms remains secure and protected from misappropriation.Read More
issued April 16, 2019
On April 16, 2019 the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert related to Privacy Notice and safeguard policy compliance issues. This regulatory communication is applicable to investment advisers and broker-dealers (“registrants”) alike. OCIE cited issues identified in deficiency letters from broker-dealer and adviser exams completed by the Staff during the past two years. It should be noted by SEC registrants that the Commission has issued deficiency notices and pursued enforcement actions on the basis of registrant non-compliance with Risk Alerts, including on the basis of guidance in the absence of a rule.Read More
The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) just delivered a holiday and new year greeting to registered investment advisers … just in case the volatile markets were not enough to keep you on your toes! On December 14th, OCIE issued a Risk Alert related to electronic messaging and on December 20th released its 2019 examination priorities. It may be the busiest time of the year, but when OCIE talks, it is worth listening!Read More
While we were busy handing out candy, the SEC was busy handing out advice! The Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert on October 31, 2018 to provide investment advisers, investors and other market participants with information concerning the most common deficiencies the staff has cited relating to Rule 206(4)-3 (the “Cash Solicitation Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”). The Risk Alert is intended to assist investment advisers in identifying potential issues and adopting and implementing effective compliance programs, and generally pertains to an adviser’s use of third-party solicitors that are subject to the broader requirements of the Cash Solicitation Rule.
On September 13, 2018, the SEC’s Division of Investment Management issued IM Information Update 2018-02 entitled “Statement Regarding Staff Proxy Advisory Letters.” The purpose of this Update is to notify advisers of its withdrawal of two 2004 no-action letters related to proxy voting. This Update follows the Commission’s July 2018 announcement of its plans to host a Roundtable with market participants (now scheduled for November 2018) to address proxy voting topics including the voting process, retail shareholder participation and the role of proxy advisory firms.
Over the past decade the SEC has consistently conveyed concern in public discourse and in adviser examinations regarding the growing reliance by advisers on proxy consultants. In 2010 the Commission sought public comment on the issue due to concern that the SEC’s own guidance permitted advisers to fulsomely rely upon the recommendations of proxy consultants. After reviewing this condition, the SEC has determined that over-reliance by advisers on proxy consultants may introduce a conflict of interest wherein the investment adviser fiduciary duty to provide objective investment advice is jeopardized.
On July 11, 2018, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert addressing deficiencies observed in their recent examinations of investment advisers’ best execution practices. For years, advisers have been required to obtain and document best execution on behalf of client account, yet firms continue to struggle with sustainable and effective best execution policy and procedure, according to SEC staff.
The Investment Advisers Act of 1940 (“Advisers Act”) establishes a federal fiduciary standard for investment advisers. As a fiduciary with responsibility to select broker-dealers and execute client trades, the adviser has an obligation to seek “best execution” of client transactions, taking into consideration the circumstances of each particular transaction. An adviser must execute securities transactions for clients in such a manner that the client’s total costs or proceeds in each transaction are the most favorable under the circumstances. Read More