The SEC’s Division of Enforcement was pleased with the results of its Share Class Disclosure Initiative, under which 95 advisory firms agreed to return more than $135 million to mutual fund investors. With that success under its belt, the Division is now turning to new targets, including revenue sharing, cash sweep arrangements, unit investment trusts and teacher retirement plans.
The four parts of the SEC’s standards of care package, adopted this past June by the SEC and met with some concern and confusion by those affected by them in the asset management community, can be expected to result in the agency issuing guidance to help advisers and others comply. In that regard, the SEC’s Division of Investment Management’s new set of answers to FAQs, released December 3, might provide some help.
Through the years there have been a number of voices calling for the SEC to measure the success of its enforcement actions as more than a collection of statistics. Now into that group comes agency Commissioner Hester Peirce, who in a recent speech urged the Division of Enforcement to take a number of steps to improve in a number of ways.
If at first you don’t succeed, try again. That appears to be what the SEC has done with the Commission’s unanimous November 25 vote to propose a new Derivatives Rule, designed to “modernize” or “standardize” the use of these financial instruments by mutual funds, exchange-traded funds and other registered funds, as well as business development companies. Now the ball is with the asset management community to decide whether they like this proposed Rule better than the last one.
Advisory firms and investment companies typically have gift and entertainment policies and procedures designed for the whole year, but that particularly are referred to during the holidays. Many of these set maximum levels for gifts that individual employees can give or receive, often somewhere between $100 and $500, while other firms ban gifts altogether – but do many firms have internal rules governing other types of gifts?
It took almost 60 years, but the SECs proposed changes bringing the Advertising Rule into the 21st century appear to be finding a welcome reception, albeit with some concerns, among those in the investment adviser community.
Perhaps not getting the same attention as the SECs proposed Advertising Rule (see separate story this issue), but important nonetheless, is the agencys proposed Solicitation Rule, which expands the reach of the Rule beyond cash compensation.
The SEC is having a busy November. On the same week that it proposed substantive changes to both the Advertising Rule and Cash Solicitation Rule, the Commission also voted to propose rule amendments that will affect how proxy advisory firms interact with advisers and others.
Chief compliance officers seeking to fill compliance staff positions traditionally seek applicants knowledgeable about the Advisers Act, good people skills and perhaps compliance experience at another firm. Those skills are still important, but CCOs today need to add another core competency to the list: familiarity with data sets,including how to read them, and how to manipulate them to see patterns.
If the SECs recent string of settlements involving share class selection and other compensatory arrangements is not enough, the agencys Division of Investment Management is leaving no stone unturned. In a new set of answers to frequently asked questions, Division staff make it clear just what disclosure they expect from advisers when there is a compensation conflict of interest.
Advisory firm chief compliance officers should avoid falling into the trap of thinking that compliance with personal trading requirements is low-hanging fruit. While it may be as simple as reviewing periodic reports for some employees, compliance in this area can be more complex and challenging.
Independent directors now comprise more than 75 percent of boards in most fund complexes, according to a new report. The report also shows that approximately two-thirds of fund complexes now have an independent chair.
Advisory firms seeking to comply with the Liquidity Risk Management Rule have seen several deadlines already pass, with two more coming up in the next few months. With that in mind, it seems a good time to take stock and review lessons learned.
Advisory contracts with clients are, in many ways, not that different than they have always been. They outline the scope of services a firm provides to clients, contain non-exclusivity clauses allowing firms to do business with other clients, and generally set forth the advisers and the clients responsibilities - but are they keeping up with the times in ways that affect a firms compliance, not to mention protection?
SECs settlements with advisory firms involving share class violations have gotten a lot of attention recently, particularly when the advisers self-reported under an agency initiative and avoided civil money penalties. Not every advisory firm qualified for that initiative, however, as a recent settlement shows where an adviser had to pay more than $1.5 million, including a $140,000 fine.
The Investment Adviser Association wants to see the definition of "accredited investor" amended in Regulation Ds Rule 501 to encompass a larger group of entities,including discretionary clients of SEC-registered advisers and "knowledgeableemployees" of private funds. The association made that recommendation, among others, in a comment letter to the SEC.