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The weekly news source for investment management legal and compliance professionals

Topic: Advisory Contracts and Fees

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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Terminate that Advisory Contract the Right Way

December 31, 2015
Keep your client’s interests first – even when terminating an advisory contract. That is, after all, your fiduciary duty. But contracts can be terminated in a way that helps your firm, as well.

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Compensation Arrangements: A Little Bit of Disclosure Does Not Go a Long Way

August 6, 2015
Don’t fall into the trap of thinking you can satisfy clients and the SEC by disclosing partial information about your firm’s compensatory arrangements. One adviser found this out the hard way when it settled a case for allegedly doing just that.

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Advisory Contracts: Don’t Cut Corners on the Approval Process

June 26, 2015
The advisory contract process for mutual funds is meant to be followed. Advisers and board members cannot ignore parts they don’t like.

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Misallocation of CEO Compensation Adds Penalty to Adviser’s Ledger

May 15, 2015
If the charges in an SEC settlement are to be believed, an adviser and its chief financial officer/chief compliance officer attempted to deceive the board of directors of a fund series by misallocating the adviser CEO’s salary in an attempt to make profits look consistent. Now it is paying the costs of a settlement instead.

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Advisory Agreement Case: SEC Files New Charges After $55M Court Win

May 1, 2015
Watch out for those old active advisory contracts. They can come back and bite you. The SEC on April 28 instituted administrative proceedings against adviser Charles Kokesh. The Commission action followed a March 30 final judgment by the U.S. District Court for the District of New Mexico, in which Kokesh was ordered to pay more than $55 million in disgorgement, interest and civil money penalties.

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SEC Ongoing Insider Trading Case Snags a Hedge Fund Manager

December 5, 2014
A hedge fund manager is the latest to be charged by the SEC in the agency’s ongoing prosecution of former executives and others involved in an alleged insider-trading scheme.

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Verdict in $35 Million Theft Case Shows Importance of Advisory Agreements

November 14, 2014
A New Mexico jury on November 7 demonstrated the danger of straying from investment advisory agreements.

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