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The weekly news source for investment management legal and compliance professionals

Topic: Advisory Contracts and Fees

SEC Staff Urges Market Participants to Begin Transition from LIBOR

July 19, 2019
The end of 2021 may still seem some far off, but in terms of advisers and other market participants that will need to transition from the London Interbank Offered Rate (LIBOR), it may be getting uncomfortably close. The SEC staff in July issued a statement urging all market participants using LIBOR to begin the process of moving away.

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Clayton Rebuts Critics of SEC Standards of Conduct Package

July 12, 2019
The SEC is standing its ground on Regulation Best Interest, the investment adviser fiduciary interpretation, Form CRS and the agency’s interpretation of the "solely incidental" prong under the Advisers Act. Much of the criticism, agency Chairman Jay Clayton said in a strongly-worded July 8 Boston speech, is "false, misleading, and, unfortunately, in some cases, is simply policy preferences disguised as legal critiques."

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House Amendment Prohibits SEC from Acting on Standards of Conduct

June 28, 2019
Every day is different. Less than a month ago, the SEC adopted the components of its Standards of Conduct Package – Regulation Best Interest, Form CRS, an interpretation of an adviser’s fiduciary duty, and an interpretation of what constitutes "solely incidental" advice provided by broker-dealers. On June 26, the U.S. House of Representatives passed an amendment to an appropriations bill that would prevent the SEC from using its funds to "implement, administer, enforce or publicize" those same rules and interpretations.

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Form CRS Challenge: Prescriptive Instructions Leave Room for Flexibility

June 28, 2019
Sometimes completing a two-page or four-page form may be just as challenging as completing a much longer one. The SEC’s new Form CRS, while not overly daunting in what it requires of advisers and broker-dealers, will require a certain degree of attention to the information the agency wants shared and perhaps some imagination in just how registrants choose to share it.

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SEC Adviser Fiduciary Interpretation: Review Disclosures, Contracts and More

June 21, 2019
Now that the dust is settling following the SEC’s adoption of its Standards of Care Package, advisers and broker-dealers are looking over the parts that affect them the most. For advisers, the Commission’s interpretation and clarification of their fiduciary duty may be the first thing they look at. While the interpretation does not appear to contain any earthshaking changes, it does make some, while clarifying what it sees as important. Advisers would be wise to review the interpretation to get a better handle on what the agency wants to see.

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SEC Adopts Form CRS, Regulation Best Interest, Adviser Fiduciary and ‘Solely Incidental’ Interpretations

June 7, 2019
The SEC on June 5, with one commissioner dissenting, adopted the much-discussed Standards of Care package, including Form CRS, Regulation Best Interest, a new Commission interpretation of adviser fiduciary duty, and an interpretation relating to when a broker-dealer may give advice to a client without being considered an adviser.

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SEC Expected to Vote on Standards of Conduct Package Wednesday

May 31, 2019
The long wait may finally be over. The SEC on June 5 will conduct an open public meeting to consider whether it will adopt new and amended rules and interpretations that have been a source of contention within the asset management community for years: the standards of conduct package.

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Assess LIBOR Exposure in Preparation for Shift

February 22, 2019
Advisory firms need to prepare for the financial community’s coming switch from the London Interbank Offered Rate (LIBOR) as the most commonly used interest rate benchmarks. Those who think of the benchmark situation as a problem affecting primarily banks are likely to be in for a rude shock, as many portfolios and financial contracts may be affected by it.

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Advisory Firm Fees: What the Future May Hold

February 22, 2019
The world of advisory firm compensation is changing and will continue to change. The next five to 10 years may see discounts, alternative forms of compensation, clients making investments that do not involve fees at all, and more. Advisers that want to stay ahead of the curve will keep up to date and be prepared for any likely eventuality.

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2018 in Review: Standards of Care, Cryptocurrencies, SEC Changes and More

December 21, 2018
With the past year almost over and a new one about to begin, it’s time to take a look back and take stock of what was accomplished in 2018 and what issues remain. The past 12 months found major developments involving standards of care for advisers and broker-dealers, the emergence of an SEC strategy regarding cryptocurrencies, a full year in office for a new SEC team and philosophy, the rising challenges of cybersecurity, and more.

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Advisers Must Follow Through on Promised Advisory Fee Discounts

December 14, 2018
It may sound like an obvious point to make: If an advisory firm promises clients that they will receive fee discounts at certain “breakpoints” based on the amount of assets they turn over to the adviser for management, it must follow through and provide those discounts. However, if an advisory firm fails to implement procedures to make good on these promises, it may find itself both shortchanging clients and facing SEC sanctions.

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Adviser Association Finds Recent Testing of Proposed Form CRS ‘Flawed’

December 7, 2018
The Investment Adviser Association is not happy with the recent testing of the SEC’s proposed Form CRS. In a December 6 statement, the IAA said that the testing of the relationship summary form, conducted by the Rand Corporation at the agency’s behest, “is substantially flawed and does not provide a reasonable basis for adopting Form CRS as proposed.”

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Form CRS: Investor Survey Finds Overall Satisfaction, but Improvements Needed

November 16, 2018
Form CRS, like a number of the SEC’s standards of care proposals, has run into significant industry criticism, but the Commission may take some satisfaction from a recent investor survey finding that nearly 90 percent of respondents said that the form would help them make more informed decisions about investment accounts and services.

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Refund Unearned Advisory Fees as Contracts and Policies Stipulate

August 10, 2018
Advisory firms receiving requests from clients to refund their advisory fees need to do so on time and in accordance with their advisory contracts, policies and procedures, and other disclosures. Failure to do so, whatever the reason, may draw attention from SEC examiners and possibly the Division of Enforcement.

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Third-Party Agreements: Ensure Clients Don’t Get Burned by Conflicts of Interest

July 13, 2018
Advisers may see agreements with other advisory firms as a way to enhance revenue. While such third-party agreements may on their face bring in additional dollars, advisers should also take precautions that they don’t create conflicts of interest with clients. When that happens, the agreements may bring in more than additional revenue – they may bring in SEC examiners and investigators.

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Adviser and Broker-Dealer Issues Play Out in Latest Share Class Settlement

January 5, 2018
The SEC reached a settlement with a dually-registered advisory firm / broker-dealer that involves the issue of recommending higher-cost share classes of securities to clients when lower-cost share-classes of securities are available. This latest share-class settlement has an added wrinkle in that the firm may have had a conflict of interest because, in its capacity as a broker-dealer, it allegedly received the additional service fee from the purchase of the higher-cost shares.

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IAA: Fiduciary Rule Definition Should Not Include Pre-Contract and Sales Discussions

April 21, 2017
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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Qualified Client Threshold Adjusted

June 24, 2016
It’s just a little adjustment – but a little may make the difference between being able to charge performance fees or not. The SEC on June 14 adjusted the dollar threshold used to exempt an adviser from the prohibition on charging performance fees.

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Proposed Incentive-Based Compensation Rule: Advisers Should Pay Attention

May 19, 2016
The proposed rule issued May 6 by the SEC and five other federal agencies that would prohibit financial institutions from offering incentive-based compensation encouraging inappropriate risk taking should be viewed with concern by at least large investment advisers. While the rule would affect only advisers with more than $1 billion in assets, the way the SEC counts such advisers may mean that some firms that believe they are under the threshold may actually fall within it.

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Assignment: Know the Requirements and Avoid the Pitfalls

January 15, 2016
Make sure your clients – and your firm – are protected when there is change in control of your firm that may result in an assignment.

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