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The weekly news source for investment management legal and compliance professionals

Examiners Coming? Here’s What Not to Do

It’s stressful enough to go through an SEC examination, without adding fuel to the fire by doing things that only make deficiencies or a referral to the Division of Enforcement more likely. Yet it is not uncommon for advisory firm employees to do just that, with actions ranging from merely embarrassing to self-incriminating. Guard against that danger by making sure your exam preparations cover not only how employees should interact with examiners, but how they shouldn’t.
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IAA: Fiduciary Rule Definition Should Not Include Pre-Contract and Sales Discussions

Does the Department of Labor just not get it? Investment advisers are already fiduciaries, both under the Advisers Act and under ERISA – yet the DOL’s Fiduciary Rule, as currently written, requires that advisers be fiduciaries not only after client contracts are signed, but during pre-contract and sales discussions. That is the view of the Investment Adviser Association, which, in an April 17 comment letter to the Department, makes clear that it wants that definition changed.
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Too Much Cybersecurity May Not Be a Good Thing

Cybersecurity is regularly ranked a top priority by advisory firms and other financial institutions. Media outlets report on companies that get hacked. The SEC issues guidance and also takes enforcement actions against advisers for not protecting client information. Cyber consultants and systems vendors find plenty of work, as advisers cannot seem to spend enough money to assure clients and potential clients that their confidential information is safe. So can a firm provide too much cybersecurity? You bet it can.
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Recent Stories

Cybersecurity: Best Practices to Reassure Anxious Clients

Every few weeks, it seems, a major company is in the news because a hacker breached its cybersecurity system. Confidential information, including personal identification data like social security numbers, account numbers and emails, are stolen. What can advisory firms do to reassure justifiably concerned clients and prospective clients that their information is well protected?
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SEC Catches a Big Fish in Its 12b-1 Fee Dragnet

The SEC shows no sign of letting up in its scrutiny of investment advisory firms that place clients in more expensive share classes when less expensive class shares of the same securities are available. It reached a settlement with a small, financially troubled adviser last month, and early this month settled charges with a large financial institution, Credit Suisse, and one of its investment adviser representatives.
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Check on Disclosure Across All Firm/Client Interactions

There’s no doubt that disclosure is a major issue for the SEC – so much so that the agency is often referred to, perhaps somewhat inaccurately, as a "disclosure agency." Smart chief compliance officers would therefore be wise to monitor and enforce disclosure requirements horizontally across all areas where firm actions affect their clients.
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DOL Fiduciary Rule Now Set to Take Effect June 9

The U.S. Department of Labor on April 4 issued what most industry experts pretty much expected: a Final Rule extending the applicability date of its Fiduciary Rule and related exemptions by 60 days, from the original date of April 10 to June 9. The Department will use that time to review and consider possible changes to the Rule and the exemptions.
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No Disgorgement or Fines for Adviser in 12b-1 Fee Settlement

It was just nine months ago that the SEC issued a risk alert saying it would be looking hard at advisory firms that failed to disclose when placing clients in mutual fund share classes that are more expensive than others – and only three weeks later charged an adviser for doing just that. On March 29, however, that firm, in a settlement with the agency, walked away without having to provide disgorgement or pay any fines.
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Clayton Approved by Senate Panel

Wall Street attorney Jay Clayton won approval as the next SEC chairman from the Senate Banking Committee on April 4. The nomination goes to the full Senate, where his nomination is expected to win final confirmation.
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Expect Clayton to Cast Critical Eye on Regulations

SEC chairman-designate Jay Clayton has a problem with "unnecessarily complex" regulations, believes the Dodd-Frank Act should be reviewed, thinks that enforcement cases in which he recuses himself are not likely to result in deadlocked Commission decisions, and wants the agency to promote capital formation.
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Electronic Communication Reviews Must Keep Up with Technology

Advisory firms need to stay up to date with technology when it comes to reviewing electronic communications. Gone are the days when email monitoring was considered cutting edge. Chief compliance officers that want to be effective today need to review communications sent by text messaging, on social media and on emerging electronic platforms, including apps.
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