tag:blogger.com,1999:blog-76701309447742581912024-03-15T15:14:24.272-04:00AdvisorAssist BlogThe AdvisorAssist Blog is a resource for regulatory, compliance, and practice management topics affecting your business.AdvisorAssisthttp://www.blogger.com/profile/06286601856299410073noreply@blogger.comBlogger193125tag:blogger.com,1999:blog-7670130944774258191.post-41314298958249176772024-03-15T15:13:00.001-04:002024-03-15T15:13:37.640-04:00FinCEN Proposal: Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements <p> </p><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgE0Y7say1jBHFkH5W-Ye5sEuLfKDDgGfxQ0PSqWyX3S-vVVq5stA9b6GwI4IcEEExriKYcEufiZBpYj_-q5vSGJR8KCR786YRXqotqH0hPVeifKunEUqf7pi6o4yYo0ERAKTOIPzG4BXgrfPOdE0t3u3-pMVv8Bd4SOgzqADgporjxMIqkha1TvvFXPdi6/s794/logo.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="699" data-original-width="794" height="137" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgE0Y7say1jBHFkH5W-Ye5sEuLfKDDgGfxQ0PSqWyX3S-vVVq5stA9b6GwI4IcEEExriKYcEufiZBpYj_-q5vSGJR8KCR786YRXqotqH0hPVeifKunEUqf7pi6o4yYo0ERAKTOIPzG4BXgrfPOdE0t3u3-pMVv8Bd4SOgzqADgporjxMIqkha1TvvFXPdi6/w156-h137/logo.png" width="156" /></a></div><div class="separator" style="clear: both; text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Proposed Rule: Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers</b></span></span></div><p></p><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Contributed By: <a href="https://www.linkedin.com/in/gmagdziarz/" target="_blank">Gabrielle Magdziarz</a></b></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span><span> Senior Compliance Consultant</span></b><br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"> <b><a href="https://www.linkedin.com/company/advisorassist/mycompany/?viewAsMember=true" target="_blank">AdvisorAssist, LLC</a></b><br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><span><br /></span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">On varying occasions, the <a href="https://www.fincen.gov/" target="_blank"><b>Financial Crimes Enforcement Network</b></a> (FinCEN) has submitted rule proposals regarding the need for Registered Investment Advisors (RIAs) and Exempt Reporting Advisors (ERAs) to be subject to comprehensive anti-money laundering and countering the financing of terrorism (AML/CFT) measures. FinCEN’s recent synopsis is driven by the <a href="https://home.treasury.gov/system/files/136/US-Sectoral-Illicit-Finance-Risk-Assessment-Investment-Advisers.pdf" target="_blank"><b>2024 Investment Adviser Risk Assessment</b></a>, which identified several illicit finance and national security risks such as sanctioned individuals, corrupt officials, tax evaders, and other criminal actors using RIAs to gain access to US Markets. Furthermore, the risk assessment identified cases of foreign adversaries, including China and Russia, investing in early-stage companies through RIAs to access sensitive information and emerging technology.
The proposal would include RIAs and ERAs in the definition of “financial institution” under <a href="https://www.fincen.gov/resources/statutes-and-regulations/bank-secrecy-act" target="_blank"><b>The Bank Secrecy Act (BSA)</b></a>. Under the BSA, RIAs and ERAs would be required to:</span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><ul style="text-align: left;"><li><span style="font-size: 12px; white-space-collapse: preserve;">implement an AML/CFT program;</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">file certain reports, such as <a href="https://www.fincen.gov/resources/suspicious-activity-report-sar-advisory-key-terms" target="_blank"><b>Suspicious Activity Reports </b></a>(SARs), with FinCEN;</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">keep records such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rule); and</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.</span></li></ul></div></span></div></span></div><p style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">Furthermore, the proposal would grant information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions to RIAs, along with subjecting RIAs to the “special measures” imposed by FinCEN pursuant to Section 311 of the <a href="https://www.fincen.gov/resources/statutes-regulations/usa-patriot-act" target="_blank"><b>USA PATRIOT Act</b></a>.
Nuances to this proposal to highlight are the following:
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</span></span></p><div><ul style="text-align: left;"><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">The proposal will not include the requirement to have a customer identification program that aligns with BSA requirements, nor beneficial ownership requirements for legal entity customers via the <a href="https://www.fincen.gov/resources/statutes-and-regulations/cdd-final-rule" target="_blank"><b>Customer Due Diligence</b></a> rule. It is expected both these requirements will come with joint SEC rule proposals down the line.</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">The proposal will not require RIAs to apply AML/CFT program or SAR filing requirements to mutual funds they advise, as mutual funds are already defined as “financial institutions” under the BSA.</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Finally, FinCEN will be delegating examination authority to the SEC for compliance with the BSA and FinCEN’s implementing regulations.</span></span></li></ul><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"></span></span></div><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">At this time, no action is required for RIAs or ERAs. The proposal will remain in a comment period through <b>April 15, 2024</b>. Should the rule become effective, compliance will be required on or before 12 months from the final rule’s effective date. </span></span></p><div style="text-align: center;"><span style="color: #333333;"></span><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><br /></span></div><div style="text-align: left;"><br /></div></span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-33794162482031694832024-02-07T10:24:00.004-05:002024-02-07T10:24:40.288-05:00Navigating the New Independent Contractor Rule: Insights for Registered Investment Advisors <p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Contributed By: <a href="https://www.linkedin.com/in/thomas-yates-b9536853/" target="_blank">Thomas Yates</a></b></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span><span> Managing Director & Partner</span></b><br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"> <b><a href="https://www.linkedin.com/company/advisorassist/mycompany/?viewAsMember=true" target="_blank">AdvisorAssist, LLC</a></b><br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><span><br /></span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Over the recent weeks, we have received inquiries regarding the U.S Department of Labor final rule on defining “independent contractor” under the Fair Labor Standards Act (FLSA) and what that means for registered investment advisors (“RIA”). Although we are not specialists in employment law, nor are we attorneys, we have consulted with legal experts to help break down the rule in regard to W-2 employees and 1099 Independent Contractors (collectively “Supervised Person(s)”) at an RIA. We note that Supervised Persons can be either Investment Adviser Representatives (“IAR”) or client administrative support persons, or other persons that are subject to the Advisor’s Compliance Program. Our goal is to provide Advisors with a basic understanding of rule language to help guide RIAs to compliance with federal wage-and-hour laws, as applicable. </span>
</span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div><div><span style="font-size: 12px; white-space-collapse: preserve;"><b>The Essence of the New Rule</b> </span></div><div><span style="font-size: 12px; white-space-collapse: preserve;">The rule's emphasis on the "economic reality" of the employment relationship underlines the importance of determining whether a worker is genuinely operating an independent business or is economically dependent on the employer. </span></div><div><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div><div><span style="font-size: 12px; white-space-collapse: preserve;">The rule focuses on six key factors, including the worker’s opportunity for profit or loss and the nature of control over the work, among others. This holistic approach encourages a deeper analysis beyond mere contractual terms to the actual practices and dynamics of the working relationship between the RIA and the Supervised Person. </span></div><div><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div><div><span style="font-size: 12px; white-space-collapse: preserve;">To simplify, here is how AdvisorAssist views the six conditions, and helps Advisors assess whether or not their Supervised Persons can be deemed Independent Contractors:</span></div><div><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div></span></div></span></div><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Opportunity for Profit or Loss</b>: If a Supervised Person can earn more by the more work they put in, clients obtained, and/or the result of their investment management, which could result in additional income earned, they can be perceived as operating as an independent contractor.</span></div></span></div></span></div></blockquote><div style="text-align: center;"><span style="color: #333333;"></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><span style="font-size: 12px; white-space-collapse: preserve;"><b>Investments by the Worker and Employer</b>: If the Supervised Person spends their own money to purchase tools, technology, or any other resources, at their discretion, to provide their services, this would suggest that they are likely acting as an Independent Contractor. </span></div></span></div></span></div></blockquote><div style="text-align: center;"><span style="color: #333333;"></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><span style="font-size: 12px; white-space-collapse: preserve;"><b>Degree of Permanence of the Relationship</b>: If the Supervised Person is an IAR and can leave at their own discretion, and take their clients to another RIA, this suggests that they are likely acting as an Independent Contractor. </span></div></span></div></span></div></blockquote><div style="text-align: center;"><span style="color: #333333;"></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><span style="font-size: 12px; white-space-collapse: preserve;"><b>Nature and Degree of Control</b>: If an RIA’s degree of control over the Supervised Person is only exercised due to the necessity to comply with regulatory requirements, and nothing more, this suggests that they are likely acting as an Independent Contractor. </span></div></span></div></span></div></blockquote><div style="text-align: center;"><span style="color: #333333;"></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><span style="font-size: 12px; white-space-collapse: preserve;"><b>Extent to Which the Work is Integral to the Potential Employer’s Business</b>: If the Supervised Person does not participate in the day to day operations of the RIA or does not influence management-level decisions, where they solely work with their own clients, suggests that they are likely acting as an Independent Contractor. </span></div></span></div></span></div></blockquote><div style="text-align: center;"><span style="color: #333333;"></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><span style="font-size: 12px; white-space-collapse: preserve;"><b>Worker’s Skill and Initiative</b>: Generally, Supervised Persons are considered “specialized” in their type of work, as they are trained to operate in this industry and if the Supervised Person is an IAR, are required to obtain a certification to provide investment advice. However, being specialized does not automatically mean a Supervised Person is working in the capacity of an Independent Contractor. Rather, the RIA should assess whether or not the Supervised Person’s skill/application is “in connection with business-like initiative”. This is a broad statement but should go into the overall analysis when determining a Supervised Person's contribution to a firm's growth vs. their intent to specifically service their own clients. </span></div></span></div></span></div></blockquote><p><span style="color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Ultimately, if Supervised Persons are compensated through fees for the services provided to clients, demonstrating minimal economic dependence on the firm, aligns well with the Independent Contractor status. Conversely, a Supervised Person on a salary or hourly wage, especially those without a direct link between compensation and client services rendered or who rely heavily on the firm for their economic sustenance, may not fit the Independent Contractor definition.</span></p><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Conclusion</b>
When completing the Form U4 for a Supervised Person who is an IAR, it is essential to accurately disclose their employment status in Section 1 of the form. This section specifically inquires whether the IAR maintains an independent contractor relationship with the firm. Proper classification is crucial because it is a regulatory filing, and the way an IAR is classified must be properly reflected.
</span></span></p><div><span style="color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">It is important to note, that this rule does not change an RIA’s responsibility to supervise its Supervised Persons, nor does it change the RIA’s obligations to act as a fiduciary. However, RIAs should consider how this rule would impact them from an employment law perspective. It is necessary for RIAs to ensure they maintain a robust employment policy to ensure adherence to the Department of Labor’s rules on the classification of its employees and ensure that wage-and-hour laws are in fact adhered to, helping mitigate the internal legal risk posed to the RIA. </span></div><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">While AdvisorAssist is not an employment law firm, we feel it is prudent that RIAs have a basic understanding of these conditions to help determine whether or not a Supervised Person can be classified as an Independent Contractor. We want to emphasize however, that all six factors, ranging from the worker’s opportunity for profit or loss, the relative investments by both parties, the permanence of the relationship, the degree of control, the integral nature of the work to the employer’s business, to the worker’s skill and initiative, must be considered in holistically. There is no single category that would determine a Supervised Person’s status, as all six categories as a whole should be assessed to an RIA determine a Supervised Person’s employment status with the RIA.
With all this in mind, if RIAs ever do question the appropriate classification of a Supervised Person, do not hesitate to reach out to an employment attorney, as RIAs should want to ensure that they have the appropriate legal backing in these classification decisions.</span></span></p><div style="text-align: center;"><span style="color: #333333;"></span><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><br /></div></span></div><div style="text-align: left;"><br /></div><div style="text-align: left;"><br /></div></span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-61063401458362755992023-12-20T13:48:00.015-05:002024-03-11T13:43:06.748-04:00Modernization of Beneficial Ownership Reporting in 2024<p><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Modernization of Beneficial Ownership Reporting in 2024</b></span></span></p><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">After 50 years the SEC has decided to adopt amendments to long-standing reporting requirements for beneficial ownership under Sections 13(d) and 13(g) of the Securities and Exchange Act of 1934. Starting in Q4 2024, the amendments will require Form D/G Filers to provide more timely information regarding their beneficial ownership in the following manner:</span></span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">13D Filers</span></span></li><ul><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">The deadline for the initial 13D filing has been shortened from 10 days to 5 business days </span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Amendments to 13D filings are required to be reported within 2 business days</span></span></li></ul><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">13G Filers</span></span></li><ul><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Qualified Institutional Investors and Exempt Investors: Initial filing deadline shortened from 45 days after year end, to 45 days after the end of the calendar quarter. </span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Passive Investors: Amendments of ownership changing 5% or more shorten the filing deadline from 10 days to 5 business days. </span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">All amendments generally required to be filed 45 days after the calendar quarter in which a material change occurred rather than 45 days after the calendar year in which any change occurred. </span> </span> </li></ul><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Require Schedule 13D and 13G filings be made using a structured, machine-readable data language, XML, via the SEC Edgar System.</span></span></li></ul><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">The amendment also provides guidance with respect to “formation of a group”, and it is of the Commission’s view that the determination of whether two or more persons are acting as a group does not depend solely on the presence of an express agreement and that, depending on the particular facts and circumstances, concerted actions by two or more persons for the purpose of acquiring, holding, or disposing of securities of an issuer are sufficient to constitute the formation of a group.
<br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Compliance with the revised Schedule 13G filing deadlines will be required beginning on Sept. 30, 2024. Compliance with the structured data requirement for Schedules 13D and 13G will be required on Dec. 18, 2024. Compliance with the other rule amendments will be required upon their effectiveness. The <b><a href="https://www.sec.gov/files/rules/final/2023/33-11253.pdf" target="_blank">final rule</a></b>, and <b><a href="https://www.sec.gov/files/33-11253-fact-sheet.pdf" target="_blank">fact sheet</a></b> can be found within the SEC’s <b><a href="https://www.sec.gov/news/press-release/2023-219" target="_blank">press release</a></b>.</span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">AdvisorAssist is in the process of reviewing rule requirements for enhancements to applicable manual language, and compliance tasks. We will be releasing further communication regarding this rule update as needed, but should you have any questions, please contact your Compliance Consultant.</span></span></div><div style="text-align: left;"><div><br /></div><div><div style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><i>Update - March 2024:</i></b> On the tailwind of this adopted amendment, the SEC announced that they settled charges against a New York-based Investment Advisor (IA) for its failure to make timely ownership disclosures. This failure led to an agreed upon $950,000 civil penalty to settle the SEC’s charges. </span></div><div style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div><div style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Although the Advisor disclosed its ownership of more than 5% of the common stock in question in December 2021, the Advisor did not properly file its change in control status and increased ownership in the position as required by federal securities laws. Please review the full press release <a href="https://www.sec.gov/news/press-release/2024-30" target="_blank"><b>here</b></a>.</span></div><div style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div><div style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">AdvisorAssist wants to remind Advisors, especially with the upcoming adopted amendments, that if the Advisor has exceeded the 5% threshold, the Advisor is required to file an initial Section 13D or G promptly and then an annual filing thereafter. In accordance with Rule 13d‐1(h), a firm may file Schedule 13G (shorter form) as long as the shares are not held with control intent – and the pitfall with our NY based IA in this scenario. </span></div><div style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div><div style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Having appropriate controls in place is imperative for supervising security thresholds for accurate and timely reporting, which includes a process for aggregating trades across various custodians. Advisors should also contact their custodians to determine if they monitor if the firm needs to file Form 13D or G. </span></div></div><div><br /></div></div><div style="text-align: left;"><br /></div><div style="text-align: left;"><br /></div></span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-9311286216732166062023-11-20T11:34:00.001-05:002023-11-20T11:34:40.501-05:00Investment Advice Fiduciary and Prohibited Transaction Exemptions Proposal<p> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="font-size: 12px; text-align: left; white-space-collapse: preserve;"><span style="color: #333333; font-family: Arial, Verdana;"><b>Department of Labor Proposal: Investment Advice Fiduciary and Prohibited Transaction Exemptions</b></span></span> </p><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">As expected, the Department of Labor (DOL) <b><a href="https://www.dol.gov/newsroom/releases/ebsa/ebsa20231031" target="_blank">released</a></b> the <b><a href="https://www.dol.gov/sites/dolgov/files/ebsa/temporary-postings/retirement-security-rule-definition-of-an-investment-advice-fiduciary.pdf" target="_blank">Retirement Security Rule: Definition of an Investment Advice Fiduciary</a></b> proposal for its 60-day comment period to the <b><a href="https://www.federalregister.gov/documents/2023/11/03/2023-23779/retirement-security-rule-definition-of-an-investment-advice-fiduciary" target="_blank">Register</a></b>, along with amendments to the various Prohibited Transaction Exemption (PTE) regulations. The intent is to expand the definition of whom qualifies as an “Investment Advice Fiduciary” under ERISA, and clarify the standards set forth in PTE regulation.
Per the rule proposal’s definition, a Provider is someone whom:</span></span></span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Provides investment advice or makes an investment recommendation to a “retirement investor” (i.e., a plan, plan fiduciary, plan participant or beneficiary, individual retirement account (IRA), IRA owner or beneficiary, or IRA fiduciary);</span></li><li><span style="font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Receives a “fee or other compensation, direct or indirect” for the advice or recommendation; and</span></li><li><span style="font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Makes the recommendation in one of the following contexts of a professional relationship where the individual investor would reasonably expect to receive sound investment recommendations that are in their best interest:The provider has discretion over the retirement investor’s investment decisions;</span></li><ul><li><span style="font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">The provider makes investment recommendations to investors on a regular basis as part of his, her, or its business, and the recommendation is provided under circumstances that would indicate that the recommendation is based on the retirement investor’s particular needs or circumstances, and </span></li><li><span style="font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">the advice may be relied upon by the retirement investor as a basis for making investment decisions that are in the retirement investor’s best interest; or</span></li></ul><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">When making the investment recommendation, the provider acknowledges or represents that they are acting as a fiduciary.</span></span></li></ul><div><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">The reason for expansion? The rule doesn’t cover IRAs. The current five-part test to determine if you are an Investment Advice Fiduciary is a Provider whom:</span></span></div><div><span style="font-family: Arial, Verdana;"><div><ul style="text-align: left;"><li><span style="font-size: 12px; white-space-collapse: preserve;">Renders advice to the plan as to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing, or selling securities or other property;</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">On a regular basis;</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">Pursuant to a mutual agreement, arrangement, or understanding with the plan, plan fiduciary or IRA owner, that;</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">The advice will serve as a primary basis for investment decisions with respect to plan or IRA assets, and that;</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">The advice will be individualized based on the particular needs of the plan or IRA. </span></li></ul><div><span style="font-size: 12px; white-space-collapse: preserve;">With the expansion of the “on a regular basis” item, to cover a Provider’s day-to-day business would effectively capture one-time advice recommendations; i.e whether a retirement investor should roll over their employer-sponsored 401(k) into an IRA, an annuity, or keep his or her assets in the plan.
In conjunction with these changes, the DOL will be maintaining core components of the PTE 2020-02. However, this amendment will require additional disclosures to investors, which if adopted may require amendments to Advisor’s client disclosures and policies and procedures. In addition, the proposal includes enhanced language regarding the exemption’s conditions, such as the fiduciary acknowledgment requirement and a new requirement to provide a written statement of the best interest standard of care owed by the investment professional to the investor. PTE 2020-02 would furthermore be expanded to cover certain transactions involving pooled employer plans (PEP) and transactions involving “pure” robo-advice providers.
AdvisorAssist will continue to monitor this proposal through its comment period in January and will communicate out further action steps as necessary. No action is needed at this time. Please contact us with any questions regarding this proposal, or your current PTE 2020-02 processes.
</span></div><div><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div></div></span></div></div><div><br /></div></span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-32519586170031129562023-11-03T13:07:00.002-04:002024-01-02T09:58:43.484-05:00Investment Advisor Representative Continuing Education <p style="text-align: left;"> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Investment Advisor Representative Continuing Education</b></span></span> </p><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Investment Advisor Representatives (IARs) have their hands full at year end with such items as required minimum distributions, end of year tax loss harvesting, client gifting, annual meetings, and the list goes on! A requirement, introduced in 2020, has added a yearly addition to certain IARs via the <b><a href="https://www.nasaa.org/wp-content/uploads/2020/10/NASAA-IAR-CE-Model-Rule.pdf" target="_blank">NASAA Model Rule</a></b> on Investment Adviser Representative Continuing Education.
Continuing education (CE) is required for every IAR registered in a jurisdiction that adopts the Model Rule. The program applies to all registered IARs of both state-registered and federal covered investment advisers in adopted jurisdictions.
</span></span></div><div style="text-align: left;"><br /></div><div style="text-align: center;"><span><span face="Calibri, sans-serif" style="color: black; font-size: 12pt; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; vertical-align: baseline; white-space-collapse: preserve;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8hCgroPtgA-ew4D9C1U0lZcG-YUowQdDeXZubxK9V1hayiLDs-4eG_08R4OPQeIcnW6jQqFCh9NJHZKmZ8UwKS6M8PjI2ABel8_AGWB3iBolstmNF4jkCse6Z8mqZJ3Nn2MyAPo9x-2FT2V9191LkMwbrgqVNrtHvlsEV9PzQGXcwCo526RKSdjXIhLDg/s1056/IARCE2024.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="816" data-original-width="1056" height="286" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8hCgroPtgA-ew4D9C1U0lZcG-YUowQdDeXZubxK9V1hayiLDs-4eG_08R4OPQeIcnW6jQqFCh9NJHZKmZ8UwKS6M8PjI2ABel8_AGWB3iBolstmNF4jkCse6Z8mqZJ3Nn2MyAPo9x-2FT2V9191LkMwbrgqVNrtHvlsEV9PzQGXcwCo526RKSdjXIhLDg/w371-h286/IARCE2024.png" width="371" /></a></div><b style="color: #333333; font-family: Arial, Verdana; font-size: 12px; text-align: left;"><a href="https://drive.google.com/file/d/1lm1nf3PS9anUwFjQrTQXeu0fu-Psq8vp/view?usp=sharing" target="_blank">Downloadable PDF of CE Map </a></b></span></span></div><div style="text-align: justify;"><span style="font-family: Arial, Verdana; font-size: 12px; text-align: left; white-space-collapse: preserve;">IARs are free to select an </span><b style="font-family: Arial, Verdana; font-size: 12px; text-align: left; white-space-collapse: preserve;"><a href="https://www.nasaa.org/industry-resources/approved-iar-ce-providers/" target="_blank">approved course provider</a></b><span style="font-family: Arial, Verdana; font-size: 12px; text-align: left; white-space-collapse: preserve;">, along with applicable classes that interest them or align to their business model, so long as the IAR obtains 12 CE credits each year - 6 credits of Products and Practices and 6 credits of Ethics and Professional Responsibility. </span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span><span style="font-size: 12px; white-space-collapse: preserve;">
IARs have an <u>annual deadline</u> to complete their CE requirement. Should they not complete their CE by <b>December 31st</b> the IAR will pay the registration renewal fee and become “CE Inactive”. This status will allow the IAR to continue doing business, but should the IAR not complete the CE requirement by end of year the IAR will be unable to renew his or her registration and become a status of “Fail to Renew”. If you are CE Inactive, courses completed in the current year will apply to the past year’s deficiency – so you will want to work with your provider and Firm to ensure you are covering prior/current year requirements.
IARs should be aware of particular nuances to the Model Rule and CE requirements, which can be reviewed on both the <b><a href="https://www.nasaa.org/industry-resources/investment-advisers/resources/iar-ce-faq/" target="_blank">NASAA FAQ</a></b> and also the <b><a href="https://www.nasaa.org/wp-content/uploads/2023/01/NASAA-CE-Program-Handbook-V3.pdf">Program Handbook</a></b>:</span></span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></span></div></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><b>Newly Registered IARs</b>: Newly registered IARs will be required to meet CE requirements by the end of their first full calendar year following the year in which they first become registered.</span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><b>IAR Multi-State Registration</b>: An IAR is responsible for the requirements of each state they are registered in during that year, whether it is a home state or additional state, whether they add the in-scope state registration halfway through the year, or whether they withdraw from an in-scope state during the year – requirements apply. For additional considerations regarding in-scope/out-of-scope states, we urge IARs to review the <a href="https://www.nasaa.org/industry-resources/investment-advisers/resources/iar-ce-faq/" target="_blank"><b>NASAA FAQ</b></a> for scenario examples, or reach out to state regulators.</span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><b>Professional Designations:</b> Although there are no exemptions to CE requirements, it would be prudent to work with a provider who can assist IARs in taking classes that cover the requirements for their professional designations and count toward state CE requirements as well.</span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><b>Dually Registered IARs</b>: Currently, FINRA CE content meets NASAA eligibility to count toward the six credits of Products and Practices credit hours. Dually registered IARs should work with their BD Firm to determine if additional training, such as Annual Firm Element classes, are approved to count toward their completion requirements for IAR CE.</span></span></span></div></span></div></blockquote><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">When an IAR completes courses, the vendor/provider reports course completion to FINRA, NASAA’s vendor for program tracking. The responsibility of tracking the vendor/provider’s submission falls on the IAR and regulators urge IARs to open a <a href="https://www.finra.org/registration-exams-ce/finpro" target="_blank"><b>FinPro</b></a> account for CE tracking purposes. Advisors can also pull CE reporting through FINRA Gateway to monitor IAR annual completions.
</span></span></p><div><span style="color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">As additional states adopt the Model Rule, CCO’s and other compliance professionals can review the NASAA Investment Advisor Representative Continuing Education </span><a href="https://www.nasaa.org/wp-content/uploads/2021/11/IAR-CE-Public-Webcast-11-04-2021.mp4" style="font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;" target="_blank"><b>training webinar</b></a><span style="color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;"> for additional information, or reach out to their AdvisorAssist consultant.</span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-62693641986408491822023-10-26T10:00:00.000-04:002023-10-26T10:00:09.078-04:00Electronic Communications: Trending Fines in the Industry<p> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Electronic Communications: Trending Fines in the Industry</b></span></span></p><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span><span style="font-size: 12px; white-space-collapse: preserve;">As we head into the holiday season, let’s introduce a small history lesson. On December 3, 1992 the first SMS message was sent from a computer by Neil Papworth, a 22 year old engineer, to a colleague’s phone stating a simple message “Merry Christmas”. Thirty years later, we look at the wide array of communication methods available to us: email, texting, instant messaging, hundreds of applications with messaging capabilities, and video conferencing. The way we communicate is changing every day, but with those changes remain the steadfast rules of this industry - it needs to be maintained, it needs to be preserved, and it needs to be supervised.</span></span></span></span></div><div style="text-align: left;"><span><span><span style="font-family: Arial, Verdana;"><blockquote style="font-size: 12px; white-space-collapse: preserve;">“Finance, ultimately, depends on trust. By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust.” Securities and Exchange Commission Chair, Gary Gensler</blockquote><span style="font-size: 12px; white-space-collapse: preserve;">Over the past two years there has been a resounding increase in violations surrounding the Securities and Exchange Commission's ongoing recordkeeping initiative. The most recent <b><a href="https://www.sec.gov/news/press-release/2023-212" target="_blank">release</a></b> in September announced another ten firms charged for widespread and longstanding failures to maintain and preserve electronic communications, totalling $79 million in fines and penalties. This news came on the tailwind of August’s <a href="https://www.sec.gov/news/press-release/2023-149" target="_blank"><b>release</b></a> where the SEC charged eleven firms with penalties totaling $289 million. In conjunction with the total fines and penalties from <b><a href="https://www.sec.gov/news/press-release/2022-174" target="_blank">2022</a></b> regarding record-keeping violations, this brings the tally to over $1.8 billion and over 50 enforcement actions.
In reviewing these enforcement actions, the commonalities are:
</span><p></p><ul style="text-align: left;"><li><span style="font-size: 12px; white-space-collapse: preserve;">Failure to reasonably supervise, with a view to prevent and detect violations of federal securities laws.</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">Failure to maintain and preserve business communications, whether it be internal or external communications.</span></li><li><span style="font-size: 12px; white-space-collapse: preserve;">Inadequate policies, procedures, and controls that are compliant and designed to detect and prevent violations.</span></li></ul></span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">RIAs have a fiduciary responsibility to their Clients, and recordkeeping has been vital to preserve that integrity. As technology continues to advance, so should the policies and procedures of every RIA to ensure all communications are being maintained. So, how does an Investment Advisor effectively mitigate their risk? Really, an Advisor has two options:
</span><ul style="text-align: left;"><li style="font-size: 12px; white-space-collapse: preserve;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">The Advisor opts to completely ban the use of personal devices and/or other various off-channel communication applications. Examples of certain control measures that can be put into place regarding this policy are:</span></span></span></li><ul><li style="font-size: 12px; white-space-collapse: preserve;">Written policies and procedures stating that personal devices and other various off-channel communication applications can not be used for business purposes, and have supervised person’s attest to those policies.</li><li style="font-size: 12px; white-space-collapse: preserve;">Enhance review of supervised electronic communications (i.e email) to ensure that off-channel communication is not occurring with clients or members of the firm alike.</li><li style="font-size: 12px; white-space-collapse: preserve;">Provide training for all supervised person’s of the Advisor regarding what is and is not acceptable, and the ramifications for violations.</li></ul><li style="font-size: 12px; white-space-collapse: preserve;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">The Advisor opts to allow for the use of text-messaging and other electronic communication methods with appropriate policies and procedures in place. Examples of certain control measures that can be put into place regarding this policy are:</span></span></span></li><ul><li style="font-size: 12px; white-space-collapse: preserve;">Written policies and procedures regarding personal devices and/or electronic communication applications may be utilized on an approved basis by the Chief Compliance Officer.</li><li style="font-size: 12px; white-space-collapse: preserve;">Advisors undergo a due diligence process for vendors they seek to utilize as part of the firm’s communication platform. This includes the reviewing the messaging platform for supervised person use, ensuring there are supervisory capabilities, and understanding the archiving set up.</li><li style="font-size: 12px; white-space-collapse: preserve;">Provide training for the supervised persons who use the platform and compliance reviewers who supervise the platform, and the ramifications for violations.</li></ul></ul><div><span style="font-size: 12px; white-space-collapse: preserve;">Advisors in need of a solution, should start with current vendors they utilize to determine if they can bundle their email, social media, website, and texting platforms which, in turn, streamlines supervision and cost as well.</span></div><div><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></div><div><span style="font-size: 12px; white-space-collapse: preserve;">Whether an Advisor allows the activity or not, having the appropriate testing and supervision measures in place is the best line of defense. Effective supervision, due diligence and proper training are key when it comes to mitigating risk. If you are questioning whether your supervised persons are utilizing personal text messaging or emails to communicate with clients, or that your policies, procedures, and controls are inadequate please contact us today!</span></div></span></span></div></span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-24142680422794054822023-10-25T15:42:00.001-04:002023-10-26T09:25:19.197-04:00Division of Examinations: 2024 Examination Priorities<p> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span><span style="font-size: 12px; text-align: left; white-space-collapse: preserve;"><b>Division of Examinations: 2024 Examination Priorities</b></span><b style="font-size: 12px; white-space-collapse: preserve;"> </b></span></span></p><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">Each year, the Division of Examinations (“the Division”) of the U.S. Securities and Exchange Commission (“SEC”) publishes its </span><a href="https://www.sec.gov/files/2024-exam-priorities.pdf" style="font-size: 12px; white-space-collapse: preserve;" target="_blank"><b>Examination Priorities</b></a><span style="font-size: 12px; white-space-collapse: preserve;"> for the upcoming year. This is the first year the Division has published their priorities to align with the beginning of the fiscal year, with the intent to inform </span><a href="https://blog.advisorassist.com/2023/03/sec-risk-alert-observations-from.html" style="font-size: 12px; white-space-collapse: preserve;" target="_blank"><b>new</b></a><span style="font-size: 12px; white-space-collapse: preserve;"> and current registrants of key risks, trends, and examination topics. Below are the key elements that we believe are of the utmost importance for registered investment advisors.
<b><u>Compliance Programs</u></b> </span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">The Division remains focused on Advisors maintaining effective and compliant programs that align with the Advisor’s business model, the corresponding annual reviews that address the effectiveness of the compliance program, and any applicable conflicts related to the Advisor. A typical exam will include a review of program and disclosure documents focusing on such topics as:
<ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Custody</span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Valuation</span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Portfolio Management</span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Brokerage and Execution </span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Conflicts of Interest</span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Compliance Issues</span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Supervision and Oversight </span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Compensation </span></span> </li></ul></span></span></div><div style="text-align: left;"><span><span style="font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Currently, the Division has stated the following topics are deemed priority review items during an exam:</span></span></div><div style="text-align: left;"><span><span style="font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Communications and Marketing</b>: It is critically important for Advisors to ensure that they have adopted and implemented written policies and procedures reasonably designed to prevent violations of the Marketing Rule, and have amended their Form ADV to appropriately disclose marketing related information. Advisors should <a href="https://blog.advisorassist.com/2023/07/sec-2023-priorities-and-marketing-rule.html" target="_blank"><b>review</b></a> their current and prospective marketing material to ensure that they can substantiate statements made within their content, and that testimonials/endorsements, third party ratings, and <a href="https://blog.advisorassist.com/2023/09/sec-marketing-rule-examination-sweep.html" target="_blank"><b>performance advertising</b></a> align with rule requirements. </span></span></div></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Compensation</b>: The SEC will continue their focus on Advisor’s compensation structures. Examiners will review Advisor’s conflicts of interest and their related client disclosures, as seen in such regulatory initiatives as the Mutual Fund Share Class Sweep and Money Market Fund/Sweep Vehicles Initiative. The concern is whether an Advisor is adhering to their fiduciary obligations when attempting to maximize their revenue through forms of additional compensation via their advice, implementation of investment products, or how fee breakpoints are calculated and processed. </span></span></div></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Valuation:</b> Advisors must ensure that there are compliant policies and procedures for the valuation of illiquid investments, such as commercial real-estate or private placements. When securities are not properly valued it will affect the billing of client assets, and affect performance considerations which can be detrimental and misleading to investors.</span></span></div></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Safeguarding Client Information:</b> Due to larger market events, geopolitical concerns, and the proliferation of cybersecurity attacks the Division will focus on Advisor’s policies and procedures (especially Regulations S-P and S-ID), governance practices, and cyber incident responses. Their reviews of policies and procedures will attempt to determine if controls are reasonably designed to safeguard customer records and information, whether the controls are implemented via a third party vendor or the Advisor itself.</span></span></div></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Accurate and Timely Regulatory Filings</b>: Regulatory filings, including the Form CRS, must be accurate, complete, and timely. Client’s must be fully aware of the services, fees, disciplinary history, and conflicts of interest of an Advisor. If not accurate, this would be deemed misleading.</span></span></div></div></span></div></blockquote><div style="text-align: center;"><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"><div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Lastly, examiners will also be mindful in understanding the Advisors approach to initial and ongoing due diligence for third party vendors, <b><a href="https://blog.advisorassist.com/2023/06/risk-alert-safeguarding-customer.html" target="_blank">branch oversight</a></b>, electronic communications, and implementation procedures for material changes of Advisor’s agreements with clients.</span></span></div><div><br /></div></div><div style="text-align: left;"><b style="background-color: white; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Private Fund Advisors</b></div><div style="text-align: left;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;"><span style="font-family: Arial, Verdana;">The SEC will continue their focus on Advisors to <b><a href="https://blog.advisorassist.com/2023/08/securities-and-exchange-commission.html" target="_blank">Private Funds</a></b> and their policies and procedures, contractual requirements, calculation and allocation of fees and expenses, and <b><a href="https://blog.advisorassist.com/2023/09/sec-charges-five-advisory-firms-for.html" target="_blank">custody</a></b>. The Division will focus on Fund’s portfolio management techniques, especially when risks are present to the fund, for example inflation or withdrawal rate. Examiners will look for adequate controls, policies, and procedures regarding timely Form PF and Form ADV updates, especially in regard to Private Fund audits by an independent qualified auditor and distribution of Private Fund audited financial statements.</span></span></div><div style="text-align: left;"><b style="background-color: white; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;"><br /></b></div><div style="text-align: left;"><span style="font-size: 12px; text-align: center; white-space-collapse: preserve;"><span style="font-family: Arial, Verdana;"><b>Standards of Conduct</b></span></span><b style="background-color: white; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;"> </b></div><div style="text-align: left;"><span style="font-size: 12px; text-align: center; white-space-collapse: preserve;"><span style="font-family: Arial, Verdana;">The SEC continues to focus on fundamental principles of fiduciary responsibility and duty to clients. Examiners will evaluate the quality of investment advice provided, particularly in relation to various products and strategies. They will also review the Advisors robustness of their investment processes such as suitability assessments, cost and risk evaluations, and conflict of interest management.</span></span></div><div style="text-align: left;"><span style="font-size: 12px; text-align: center; white-space-collapse: preserve;"><span style="font-family: Arial, Verdana;"><br /></span></span></div></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="text-align: center;"><span style="font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;"><b>Evaluation of Investment Advice:</b> Examiners will focus on the evaluation of investment advice provided to clients. Specifically the concern around various products, investment strategies, and account types that are considered complex in nature. Complex products like derivatives and leveraged ETFs, high-cost and illiquid options such as variable annuities and non-traded REITs, and unconventional strategies targeting rising interest rates are a sample of mentioned items. There is an expectation that appropriate due diligence is performed before the investment advice is rendered. This allows the Advisor to substantiate the appropriateness of their investment recommendations, especially when considering certain client types such as seniors.</span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="text-align: center;"><span style="font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">
</span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="text-align: center;"><span style="font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;"><b>Client’s Best Interest:</b> To ensure appropriateness of investment advice, the Advisor must have a process in place for making initial and ongoing suitability determinations, which should consider best execution, cost and risk evaluation, investment restrictions, and conflict of interest management. Further, the Advisor should adopt policies to evaluate reasonably available alternative products. Determining Client’s best interest should also include how an Advisor handles conflicts of interest by either mitigating or eliminating them.</span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="text-align: center;"><span style="font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">
</span></span></span></div></span></div><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="text-align: center;"><span style="font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;"><b>Compensation Arrangements: </b>Advisors have a fiduciary obligation to be transparent regarding their compensation arrangements with clients and affiliates. Disclosures are required for Advisor’s compensation for services provided to clients, including valuation methods, and alternative compensation arrangements such as <b><a href="https://blog.advisorassist.com/2023/10/when-revenue-becomes-conflict-mutual.html" target="_blank">cash sweep programs/mutual fund share classes.</a></b></span></span></span></div></span></div></blockquote><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Additionally, exams will include reviews of any economic incentives that an Advisor has to recommend products, services, or account types and how that affects investment advice, such as share class selection or proprietary products. This enhances last year’s priority where exams included conflict of interest disclosures and whether the disclosures are sufficient in scope that a client can provide informed consent to the conflict, whether express or implied. The inquiry will focus on whether the firm has tailored and established policies and procedures to identify and periodically review conflicts of interest, in alignment with the Firm’s business model, compensation structure, and product lineup</span></span></p><p><b style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Crypto Assets and Emerging Financial Technologies</b></p><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">The Division will continue its focus and exams on certain types of investments such as crypto/crypto related products and services, along with emerging financial technology such as mobile apps, robo-advisors, and additional online solutions. </span></span><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Due to recent events in the crypto asset market the Division will continue to monitor and select applicable registrants for examination which will focus on the offer, sale, or recommendation of, advice regarding and trading in crypto or crypto-related assets. Furthermore, the Division will assess the following:</span></p><p></p><ul style="text-align: left;"><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">The registrants’ requirements under the standards of care in crypto or crypto relates assets</span></span></li><li><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Whether the registrant reviews and updates their compliance and risk practices, and disclosures accordingly</span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">New or never examined registrants offering crypto or crypto-related assets</span></span></li></ul><p></p><p><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">In particular, the Division will focus on the tools and methods offered via digital engagements through RIAs:</span></p><p></p><ul style="text-align: left;"><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">Recommendations being provided via electronic channels such as social media or social trading platforms.</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">Whether representations align with Marketing Rule requirements</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">Are applicable disclosures and controls in place</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">Are recommendations being made in the client’s Best Interest</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="background-color: white; font-size: 12px; white-space-collapse: preserve;">Risks that may be associated with this method of business practice</span></span></li></ul><p></p><p><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Please remember that the Division communicates these as PRIORITIES, and should not be relied upon as an all-inclusive list of all focus areas. To read the full report, click here: <a href="https://www.sec.gov/files/2024-exam-priorities.pdf" target="_blank"><b>Division of Examinations 2024 Examination Priorities</b></a>.</span></p><p><br /></p>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-50493574743589859362023-10-05T17:00:00.000-04:002023-10-05T17:00:12.774-04:00When Revenue Becomes a Conflict: Mutual Fund Share Classes & Cash Sweep Programs <p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><h3 style="text-align: center;"><span style="font-size: medium;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">When Revenue Becomes a Conflict</span></span></span></h3><p style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana; font-weight: normal; text-align: left; white-space-collapse: preserve;">Mutual fund share class selection and cash sweep programs are two of the most common forms of revenue sharing, turned into undisclosed conflict of interest, facing the industry over the past few years. After multiple Division self-reporting initiatives, exam sweeps, and enforcement cases, press releases like the AssetMark Inc. case are still hitting the wire…but why? </span></p><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">The most recent <a href="https://www.sec.gov/news/press-release/2023-199?utm_medium=email&utm_source=govdelivery" target="_blank">SEC order</a> found that AssetMark Inc. agreed to pay over $18 million, of which $8.5 million is to be distributed to harmed investors, because the firm failed to provide full and fair disclosure for several items:</span></span></p><p></p><ul style="text-align: left;"><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">AssetMark received economic benefits from assets held in certain no-transaction-fee mutual funds, but it failed to disclose to clients that lower-fee share classes were available, but these share-classes had no payout for AssetMark.</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">AssetMark assisted the affiliate custodian in setting the fee received for operating the cash sweep program, which reduced interest payments to clients.</span></span></li></ul><p></p><div><span style="font-family: Calibri, sans-serif;"><span style="white-space-collapse: preserve;"></span></span><blockquote><span style="font-family: Calibri, sans-serif;"><span style="white-space-collapse: preserve;">“Investment advisers have a fundamental duty to disclose conflicts between their own financial interests and those of their clients. Here, AssetMark failed to disclose multiple financial conflicts of interest where AssetMark and its affiliated custodian reaped significant financial benefit from decisions it made.” - </span></span><span style="font-family: Calibri, sans-serif; white-space-collapse: preserve;"><i>Andrew Dean, Co-Chief of the SEC Enforcement Division’s Asset Management Unit</i></span></blockquote><span style="font-family: Calibri, sans-serif; white-space-collapse: preserve;"><i></i></span></div><div><span style="font-family: Calibri, sans-serif;"><span style="white-space-collapse: preserve;"><blockquote><b></b></blockquote></span></span></div><p></p><div><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Furthermore, over the past few years the SEC has peppered in several money market sweep vehicle and fund cases where Advisors have failed to disclose revenue sharing related to clients' funds held in cash sweep vehicles, a few examples of which are below:</span></span></div><div><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><br /></span></span></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div><span><span><div style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><a href="https://www.sec.gov/enforce/ia-6046-s" target="_blank"><b>Trust Advisory Group</b></a></span></div></span></span></div><div><span><span><div style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><a href="https://www.sec.gov/enforce/ia-5874-s" target="_blank"><b>Cowen Prime Advisors LLC</b></a></span></div></span></span></div><div><span><span><div style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><a href="https://www.sec.gov/files/litigation/admin/2021/34-92809.pdf" target="_blank"><b>Cantella & Co., Inc</b></a></span></div></span></span></div><div><span><span><div style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><a href="https://www.sec.gov/files/litigation/admin/2021/ia-5767.pdf" target="_blank"><b>St. Germain Securities, Inc.</b></a></span></div></span></span></div></blockquote><div><span><span><div style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><br /></span></div><div style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">The <a href="https://www.sec.gov/news/press-release/2019-28" target="_blank"><b>SEC’s Share Class Initiative</b></a> has cumulatively returned well over $125 million to retail clients from Advisors who directly or indirectly received 12b-1 fees for client investments without adequate disclosure, including disclosures that were inconsistent with policies and procedures.
At AdvisorAssist, we remind clients that as part of an Advisor's fiduciary duty to clients, Advisors should endeavor to purchase the lowest-cost share class available to clients when recommending a particular mutual fund and maintain policies and procedures which align to the Advisor’s true business practices. AdvisorAssist encourages Advisors to review their mutual fund holdings, whether purchased or transferred in, and if a client is invested in a share class that is potentially not the lowest cost, Advisors need to ensure the firm has proper documentation substantiating why the client is holding the position. Examples of why the holding isn't converted to the lowest share class may include, but are not limited to:</span></div><div style="color: #333333; font-family: Arial, Verdana;"><ul style="text-align: left;"><li><span style="white-space-collapse: preserve;">Tax implications</span></li><li><span style="white-space-collapse: preserve;">Dollar-cost averaging</span></li><li><span style="white-space-collapse: preserve;">It does not meet the minimum investment</span></li><li><span style="white-space-collapse: preserve;">Investment time horizon</span></li><li><span style="white-space-collapse: preserve;">The availability of lower share classes at the custodian</span></li></ul></div><div><span id="docs-internal-guid-73ba730e-7fff-c026-ce0c-dc57313fd702"><div><span style="font-family: Calibri, sans-serif;"><div><span style="white-space-collapse: preserve;">When it comes to money market funds or sweep vehicles, similar conflicts exist in regard to revenue sharing and cost to client. Enforcement actions boil down to Advisors choosing money market or cash sweep vehicles when lower or no-cost options were available to clients and where Advisors would not have received any revenue sharing. Also, Advisors breached their fiduciary duty by failing to provide full and fair disclosure of its money market fund selection practices, failing to consider additional funds/vehicles available, and related conflicts of interest to its advisory clients. To that end these Advisors willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.</span></div><div><span style="white-space-collapse: preserve;"><br /></span></div><div><span style="white-space-collapse: preserve;">An Advisor can not place the Firm’s financial interests ahead of their clients, and regulator’s continue to maintain that if the industry reaps financial benefit from clients – there will be regulatory action. </span><span style="color: #333333; font-family: Arial, Verdana; white-space-collapse: preserve;">If you have any questions or concerns please contact your consultant to discuss!</span></div></span></div></span></div></span></span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-87450957979653972092023-09-13T13:33:00.000-04:002023-09-13T13:33:24.976-04:00SEC Marketing Rule Examination Sweep Continues<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="text-align: left; white-space-collapse: preserve;"><span style="color: #333333; font-family: Arial, Verdana;"><b>SEC Marketing Rule Examination Sweep Continues</b></span></span></p><p style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">On September 11th a <b><a href="https://www.sec.gov/news/press-release/2023-173" target="_blank">Press Release</a></b> from the SEC announced charges against nine Advisors for hypothetical performance advertising violations as part of the SEC’s initial sweep into <a href="https://www.sec.gov/files/rules/final/2020/ia-5653.pdf" target="_blank"><b>Marketing Rule</b></a> Violations. These charges related to promoting hypothetical performance on the Advisor’s websites to the general public without adopting and/or implementing policies and procedures as required by the rule. Additionally, two firms were found to have failed to retain appropriate copies of the advertisements within the Firm’s books and records. All nine firms agreed to settle, were censured, and must pay <b>$850,000</b> in combined damages.
Gurbir Grewal, the SEC’s <i>Director of the Division of Enforcement</i>, emphasized the Commission’s view that hypothetical performance advertising poses an elevated risk to prospective investors, and the importance of firms adopting policies and procedures under the new rule to mitigate this risk. He also made it clear that until the Commission is satisfied that that is the case, they will continue their ongoing sweep to ensure investment advisor’s compliance with the Marketing Rule.
AdvisorAssist reminds Advisors that the Marketing Rule is applicable to SEC-registered firms and certain State-registered firms who have adopted it. Under the rule, an Advisor is permitted to include hypothetical performance in an advertisement, provided that the Advisor:</span></span></p><p></p><ul style="text-align: left;"><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Adopts policies and procedures reasonably designed to ensure that the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Provides sufficient information to enable the intended audience to understand the criteria used and assumptions made in calculating the hypothetical performance </span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Provides sufficient information to enable the audience to understand the risks and limitations of using hypothetical performance to make investment decisions.</span></span></li><ul><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><i>Important Note</i>: Hypothetical performance should only be distributed to clients and/or prospective clients who have access to the resources to independently analyze such information and who have the financial expertise to understand the risks and limitations of such types of presentations.</span></span></li></ul><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Maintain the relevant data and documentation that supports the hypothetical performance figures presented.</span></span></li></ul><p></p><div><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Considering the SEC’s stance on continuing targeted examinations, Advisors are urged to review AdvisorAssists <b><a href="https://blog.advisorassist.com/2023/07/sec-2023-priorities-and-marketing-rule.html" target="_blank">blog post</a></b> regarding the need for a retrospective review of all marketing pieces, the AdvisorAssist <b><a href="https://drive.google.com/file/d/19wY__GyJ-Hm99tZ8w9yRag9DhSP5O_xp/view?usp=drive_link" target="_blank">SEC Sample Marketing Exam Request</a> </b>and take advantage of our <b>Mock Examination Services</b> should they have concerns or feel the need to enhance current procedures. This is the tenth hypothetical performance related violation the SEC has released in less than a month, the first which you can review in the AdvisorAssist <a href="https://blog.advisorassist.com/2023/08/misrepresentations-in-hypothetical.html" target="_blank"><b>blog post</b></a> released in August.</span></span></div><div><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><br /></span></span></div><div><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">If you have any questions or concerns please contact your consultant to discuss!</span></span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-55816071509422125302023-09-06T17:23:00.003-04:002023-09-06T17:23:53.308-04:00SEC Amends Record-Keeping Requirements for Investment Advisors<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="text-align: left; white-space-collapse: preserve;"><span style="color: #333333; font-family: Arial, Verdana;"><b>SEC Amends Record-Keeping Requirements for Investment Advisors</b></span></span></p><p style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">The SEC has made amendments to record-keeping requirements, <b><a href="https://www.sec.gov/files/rules/final/2023/34-96930.pdf" target="_blank">Rule 275.206(4)-2</a></b>, for Registered Investment Advisors. The amendments focus on maintaining accurate and up-to-date records of <i>allocations, confirmations, </i>and<i> affirmations </i>(as defined below) related to securities transactions subject to <b>Rule 15c6-2(a)</b>. These changes apply universally to registered investment advisors and include provisions for maintaining records electronically. The rule was finalized on <b>May 5, 2023 </b>with the Federal Registrar and has a compliance date of <b>May 28, 2024</b>. </span></span></p><p style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Let's start with the definable terms within the rule language:</span></span></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><p style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><i>Allocation</i> - Refers to how Advisors divide a trade among different client accounts or distribute securities trades made simultaneously.</span></span></p><p style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><i>Confirmation and Affirmation</i> - Refers to message exchanges between the Advisor and Broker-Dealer/Custodian to verify trade details, for accurate settlement of trades executed on behalf of clients/investors. This also includes confirmation of the execution of the trade.</span></span> </p></blockquote><p style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;"></span></p><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">With these changes, Advisors are now required to archive the following:</span></span></p><p></p><ul style="text-align: left;"><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">The date and time stamp indicating when the trade allocation and trade affirmation occurred. </span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Details, sent or received, about each </span></span><span style="color: #333333; font-family: Arial, Verdana; white-space-collapse: preserve;">confirmation received, </span><span style="color: #333333; font-family: Arial, Verdana; white-space-collapse: preserve;">any allocation made, </span><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">and each affirmation.</span></span></li></ul><p></p><div><span style="color: #333333; font-family: Arial, Verdana; white-space-collapse: preserve;">Securities transactions subject to <b>Rule 15c6-2(a)</b> refers to “All Securities”, with certain exemptions, as follows:</span></div><p style="text-align: left;"></p><ul style="text-align: left;"><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Exempted Securities (e.g. Private Funds)</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Government Securities</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Municipal Securities</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Commercial Paper</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Bankers’ Acceptances</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Commercial Bills</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Security Based-Swaps
</span></span></li></ul><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"></span></span><p></p><div><span style="color: #333333; font-family: Arial, Verdana; white-space-collapse: preserve;">Be on the lookout for communications regarding enhanced policies and procedures, along with industry best practices as we continue to review rule requirements. Please do not hesitate to reach out to your Compliance Consultant should you have any questions.</span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-85125370994187040532023-09-06T13:19:00.002-04:002023-09-06T13:19:37.066-04:00SEC Charges Five Advisory Firms for Custody Rule Violations<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="text-align: left; white-space-collapse: preserve;"><span style="color: #333333; font-family: Arial, Verdana;"><b>SEC Charges Five Advisory Firms for Custody Rule Violations</b></span></span></p><p style="text-align: justify;"><span style="color: #333333; font-family: Arial, Verdana; text-align: left; white-space-collapse: preserve;">On September 5, 2023, the SEC announced Custody Rule related <a href="https://www.sec.gov/news/press-release/2023-168?utm_medium=email&utm_source=govdelivery" target="_blank">charges</a> against five investment advisers, with fines totalling more than <a href="https://www.sec.gov/files/2023-168-chart.pdf" target="_blank">$500,000</a>. These charges come on the tailwind of the <a href="https://www.sec.gov/news/press-release/2022-156" target="_blank">2022 charges</a> of nine investment advisers, with fines totalling more than $1 million. According to the order, the firm’s failed to do one or more of the following:</span></p><p style="text-align: justify;"></p><ul><li><span style="text-align: left; white-space-collapse: preserve;"><span style="color: #333333; font-family: Arial, Verdana;">Have audits performed</span></span></li><li><span style="text-align: left; white-space-collapse: preserve;"><span style="color: #333333; font-family: Arial, Verdana;">Deliver audited financials to investors in a timely manner</span></span></li><li><span style="text-align: left; white-space-collapse: preserve;"><span style="color: #333333; font-family: Arial, Verdana;">Ensure a qualified custodian maintains client assets </span></span></li><li><span style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;">Failure to disclose custody, and amend ADV information accordingly</span></span></li></ul><div><span style="color: #333333; font-family: Arial, Verdana;"><blockquote>“The Custody Rule and the associated Form ADV reporting obligations are core to investor protection,” said Andrew Dean, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “We will continue to ensure that private fund advisers meet their obligations to secure client assets.”</blockquote></span></div><div style="text-align: left;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">AdvisorAssist reminds their clients of their obligations concerning custody. An Advisor may be deemed to have custody when: </span></span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">A Supervised Person of an Advisor is appointed as executor, conservator, or trustee for an estate, conservatorship, or personal trust or have power of attorney for a client unless, the appointment of these roles is through familial obligation or through a personal relationship, and not as a result of employment with an advisor.</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">An Investment Advisor Representative or Supervised Persons maintains client personal login credentials. </span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">An Advisor has check writing or discretionary money movement authority to third parties. However, and Advisor may not be subject to the independent, surprise examination requirement of the custody rule, for standing letters of authorization to third parties, provided the standing instructions meet the seven conditions test, per the February 17, 2017 <a href="https://www.sec.gov/divisions/investment/noaction/2017/investment-adviser-association-022117-206-4.htm">No-Action Letter </a>.</span></span></li><li><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">If you are an Advisor to a private fund, you are deemed to have custody of the fund's assets. As such, the fund[s] must be audited annually by an independent public accountant registered with the Public Company Accounting Oversight Board (PCAOB), where audited financials must be delivered to investors within 120 days of the fiscal year end (180 days for fund of funds).</span></span></li></ul><div><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Generally, a registered investment advisor who is deemed to have custody of retail client assets will be required to maintain these assets as a "qualified custodian." Further, they must ensure that the Qualified Custodian is delivering statements to the client on an at least quarterly basis.
<br /></span></span></div><div><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Should a firm touch upon any of the stated items related to custody, it is imperative that they reach out to their AdvisorAssist consultant for further assistance.
</span></span></div><div><br /></div></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-21186617970097298762023-08-30T15:32:00.001-04:002023-08-30T15:36:23.192-04:00Securities and Exchange Commission Adopts Final Rules for Private Funds<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana; text-align: left; white-space-collapse: preserve;"><b>Securities and Exchange Commission </b></span><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><b>Adopts Final Rules for Private Funds</b></span></span></p><p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"></span></p><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;">The U.S. Securities and Exchange Commission (SEC) has implemented significant reforms aimed at enhancing the regulation of private fund advisors to safeguard the interests of investors and maintain the integrity of financial markets. These new rules address certain practices that could pose risks and harm to investors and private funds, ensuring greater transparency and protection for those who invest directly or indirectly in private funds. </span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><br /></span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><b>Key Requirements:</b></span></span></span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><b>Quarterly Statements:</b> Private fund advisors, registered with the SEC, will be required to provide investors with quarterly statements. These statements will detail information about private fund performance, fees, expenses, and compensation paid to the advisor.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><b>Private Fund Audits: </b>Registered private fund advisors must arrange for annual financial statement audits for the funds they advise. This measure aims to ensure accurate valuation of private fund assets and prevent misappropriation.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><b>Advisor-Led Secondaries:</b> When offering existing fund investors options to sell or convert their interests, advisors must obtain a fairness or valuation opinion. Additionally, advisors must disclose any significant business relationships related to these transactions.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><b>Restricted Activities: </b>Restrictions are in place for private fund advisors from engaging in activities that conflict with investor interests, including charging certain fees without disclosure and consent from investors, allocating regulatory expenses to the fund, and reducing clawback amounts.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><b>Preferential Treatment: </b>Advisors are prohibited from offering preferential terms to certain investors regarding redemptions or portfolio information. Exemptions may apply, where preferential treatment must be disclosed to all investors.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><b>Compliance Documentation:</b> Private fund advisors must document their annual compliance reviews in writing. This will help assess adherence to rules and identify potential compliance weaknesses</span></span></span></li></ul></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;">Although the rule has been finalized, advisors have some time before they are required to adhere to these new rules. Below is the implementation timeline:</span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><div><ul style="text-align: left;"><li><b>Private Fund Audit Rule and Quarterly Statement Rule: </b>Compliance is required in ~18 months</li><li><b>Advisor-Led Secondaries Rule, Preferential Treatment Rule, and Restricted Activities Rule for advisors with more than $1.5 billion AUM: </b>Compliance is required in ~12 months</li><li><b>Advisor-Led Secondaries Rule, Preferential Treatment Rule, and Restricted Activities Rule for advisors with less than $1.5 billion AUM: </b>Compliance required ~18 months</li></ul></div></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana; white-space-collapse: preserve;">AdvisorAssist is closely monitoring industry best practices, interpretations, and any additional guidance the SEC may provide. We anticipate more clarity from the SEC as feedback comes in, and have begun the process to fully analyze and formulate guidance to help ensure adherence to the new private fund rule if they apply to your firm. Please reach out anytime if you need assistance or have questions in the meantime.</span></div></span></div>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-66242938838316145732023-08-22T11:14:00.001-04:002023-08-22T11:14:55.993-04:00Misrepresentations in Hypothetical Performance Leads to SEC’s First Marketing Rule Enforcement Case<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><b>Misrepresentations in Hypothetical Performance Leads to SEC’s First Marketing Rule Enforcement Case</b></span></span></p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><a href="https://www.sec.gov/investment/marketing-faq" target="_blank">FAQs</a>, <a href="https://www.sec.gov/files/risk-alert-marketing-rule-announcement-phase-3-060823.pdf" target="_blank">Risk Alerts</a>, and <a href="https://www.sec.gov/news/press-release/2023-153?utm_medium=email&utm_source=govdelivery" target="_blank">press releases</a> can provide valuable insight into the SEC’s thought process on rule language, maybe even more so than the rule itself. On August 21, 2023, the SEC announced its first violation of <a href="https://www.sec.gov/files/rules/final/2020/ia-5653.pdf" target="_blank">206(4)-1 The Marketing Rule</a>, in a case that also touches other hot button industry items. The SEC found that <i>Titan Global Capital Management USA LLC </i>(Titan), used misleading hypothetical performance metrics in advertisements, and had several other compliance failures, leading to fines totaling <b>$192,454</b> in disgorgement and an <b>$850,000</b> civil penalty for affected clients.
From August 2021 to October 2022, Titan made misleading statements on their website regarding the Advisor’s hypothetical performance. These statements included annualized performance yielding a high mark of 2,700% for their crypto strategy. These results did not disclose material information, such as the fact that the annualized projections assumed performance based on the first three weeks of the strategies performance data, nor taking into light economic/market conditions, or other applicable risk factors.
<a href="https://www.linkedin.com/company/advisorassist/mycompany/" target="_blank">AdvisorAssist</a> has engaged with <a href="https://www.linkedin.com/in/seanpgilligan/" target="_blank">Sean P. Gilligan CFA, CPA, CIPM</a>, Managing Partner of <a href="https://www.linkedin.com/company/longs-peak-advisory-services-llc/" target="_blank">Longs Peak Advisory Services</a>, </span></span><span style="font-family: Arial, Verdana; white-space-collapse: preserve;">as an industry expert and provider of guidance with GIPS compliance and investment performance measurement, analysis, and reporting to comment on some key data points of this case: </span><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><blockquote><i>“Periods less than a year should never be annualized. This has always been a requirement under the GIPS standards, but even without being a GIPS compliant Advisor, I think most SEC examiners would have considered this to be misleading - even prior to the new Marketing Rule. Then you add in such a volatile and risky asset like crypto, where repeating a return earned over 3 week period for an entire year, would not be a likely scenario.”</i></blockquote></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">Furthermore, Titan failed to adopt and implement the required policies and procedures regarding the Marketing Rule:</span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><blockquote>
<i>“Having policies and procedures to determine who can receive hypothetical performance is one of the key updates made clear in the new marketing rule.” </i>said Gilligan,<i> “When working with firms that want to use hypothetical performance, we always emphasize the importance of having these policies and to limit the distribution to only those that can reasonably be expected to understand what they are presenting.”</i></blockquote></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">
AdvisorAssist has guided on the importance of a retrospective review of Advisor’s active client communications in our recent <a href="https://blog.advisorassist.com/2023/07/sec-2023-priorities-and-marketing-rule.html" target="_blank">blog post</a>, and stressed how regulatory examinations are focused on components of the Marketing Rule by providing <a href="https://drive.google.com/file/d/19wY__GyJ-Hm99tZ8w9yRag9DhSP5O_xp/view" target="_blank">sample request letters</a> to clients. </span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">
As a reminder, an Advisor should treat any form of communication to Clients that is designed to solicit or maintain advisory service (“Client Communications”) as covered by regulations under Securities Laws. This includes written communications on a one-to-one basis to existing, or prospective, advisory Clients designed to offer advisory services, or maintain the existing Client, are subject to the general prohibitions under the Marketing Rule.</span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">
In conjunction with adopting applicable policies and procedures, as Mr. Gilligan stated above, it is imperative that the discloses for all client communications all relevant criteria used and assumptions made in calculating the hypothetical performance, and discloses sufficient information to allow the intended audience to understand the risks and limitations associated with hypothetical performance.</span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">
AdvisorAssist can support you with questions you may have regarding your current performance advertising and/or Marketing Rule policies and procedures. Please contact us today!
</span></span></div><div style="text-align: left;"><br /></div></span></div></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-47649046929720093262023-07-27T15:33:00.000-04:002023-07-27T15:33:23.372-04:00SEC Rule Proposal: Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker Dealers and Investment Advisers<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><b>SEC </b></span></span><span style="text-align: left; white-space-collapse: preserve;"><span style="color: #333333; font-family: Arial, Verdana;"><b>Rule Proposal: Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker Dealers and Investment Advisers</b></span></span></p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">The financial sector has been speculating at guidance regarding the use of AI technology, and on <a href="https://www.sec.gov/news/press-release/2023-140?utm_medium=email&utm_source=govdelivery">July 26, 2023</a> the SEC stepped forward with their <a href="https://www.sec.gov/rules/proposed/2023/34-97990.pdf">rule proposal</a> on the use of predicative data analytics and these technological advancements. Although these systems can be optimized for investor interests, if not properly supervised, these technologies can effectively cause conflicts to arise and harm the end investor.
The proposal defines these technologies as a “<i>covered technology</i>”, used in a firm’s engagement or communication with an investor/prospect:</span></span><br /><span style="font-family: Arial, Verdana;"><p style="text-align: center; white-space-collapse: preserve;"><i><span></span></i></p><blockquote><span style="white-space-collapse: preserve;"><i>“Any analytical, technological, or computational functions, algorithms, models, correlation matrices, or similar methods or processes that optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes of an investor. “</i></span></blockquote><p style="white-space-collapse: preserve;"></p></span><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;">Per the proposal, if an Advisor uses, or may foreseeably use, a covered technology during client interactions the Advisor must:
<ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;">Evaluate and identify any conflict of interest associated with the use of covered technology in investor interactions, and determine whether any conflict of interests exists that place the firm’s or its associated person’s interest ahead of investors’ interests.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;">Eliminate or neutralize the effect of conflicts of interest if discovered.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;">Have written policies and procedures reasonably designed to prevent violations of the rule.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;">Adhere to record-keeping requirements of the rule.</span></span></span></li></ul></span><span style="white-space-collapse: preserve;">AdvisorAssist will continue to monitor this proposal as it goes through its comment period. </span><span style="background-color: transparent; white-space-collapse: preserve;">Should you have any questions, please contact your AdvisorAssist Consultant for further information.</span><span style="white-space-collapse: preserve;">
</span></span></span></div></span></div></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-71740958753622019452023-07-10T12:09:00.001-04:002023-07-13T13:10:52.731-04:00SEC 2023 Priorities and the Marketing Rule – How Important is a Retrospective Review?<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><b>SEC 2023 Priorities and the Marketing Rule – How Important is a Retrospective Review?</b></span></span></p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;"><span>With the release of the <b><a href="https://blog.advisorassist.com/2023/02/sec-division-of-examinations-2023.html">SEC Division of Examinations 2023 Examination Priorities</a></b>, newly registered advisers and other SEC registered investment advisers, undergoing an examination, have begun to receive exam requests from the newest addition to the Division’s core examination review - the <b><a href="https://www.sec.gov/rules/final/2020/ia-5653.pdf">Advisers Act Rule 206(4)-1</a></b> (Marketing Rule).It is critically important for Advisors to ensure that they have adopted and implemented written policies and procedures reasonably designed to prevent violations of the Marketing Rule. New and existing Advisors, must be prepared to have the Division request these policies and procedures, and request samples of active/currently used client communications pieces along with their corresponding reviews and approvals.
On June 8, 2023 the SEC released the <b><a href="https://www.sec.gov/files/risk-alert-marketing-rule-announcement-phase-3-060823.pdf">Risk Alert: Examinations Focused on Additional Areas of the Adviser Marketing Rule</a></b> reiterating it’s primary areas of focus during exams:
</span><ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><span>Policies and Procedures</span></span></li><li>Substantiation Requirement</li><li>Performance client communications Requirements</li><li>Books and Records</li></ul></span></span><span style="font-family: Arial, Verdana; white-space-collapse: preserve;"><p style="text-align: center;"><i><span></span></i></p><blockquote><i><span>“The Division encourages advisers to review their websites and other marketing materials for compliance with the Marketing Rule, including ensuring that they have a reasonable basis for believing they will be able to substantiate material statements of fact and that their performance client communications, including extracted performance and hypothetical performance, complies with the requirements of the Marketing Rule.” </span></i></blockquote><p></p></span><span style="font-family: Arial, Verdana; white-space-collapse: preserve;"><span>The Staff is also conducting focused examinations, as well as broad reviews, on such topics as Testimonials and Endorsements and Third Party Rankings, Rating, and Awards. Please click <b><a href="https://drive.google.com/file/d/19wY__GyJ-Hm99tZ8w9yRag9DhSP5O_xp/view?usp=sharing" target="_blank">here</a></b> for examples of questions AdvisorAssist has seen during examinations regarding the Marketing Rule.
As a reminder, an Advisor should treat any form of communication to Clients that is designed to solicit or maintain advisory service (“Client Communications”) as covered by regulations under Securities Laws. This includes written communications on a one-to-one basis to existing, or prospective, advisory Clients designed to offer advisory services, or maintain the existing Client, are subject to the general prohibitions under the Marketing Rule.
It is imperative that client communications that were approved PRIOR to the rule’s compliance date (or Advisor’s implementation date), do not receive any level of grandfather clause regarding compliance with the Marketing Rule or the Advisor’s newly published policies and procedures.</span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana; white-space-collapse: preserve;"><span><br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">As a reminder, an Advisor should treat any form of communication to Clients that is designed to solicit or maintain advisory service (“Client Communications”) as covered by regulations under Securities Laws. This includes written communications on a one-to-one basis to existing, or prospective, advisory Clients designed to offer advisory services, or maintain the existing Client, are subject to the general prohibitions under the Marketing Rule.
It is imperative that client communications that were approved <u><b>PRIOR</b></u> to the rule’s compliance date (or Advisor’s implementation date), do not receive any level of grandfather clause regarding compliance with the Marketing Rule or the Advisor’s newly published policies and procedures.</span></span></div><div style="text-align: left;"><br /></div></span></div></span><b style="background-color: white; color: #333333; font-family: Arial, Verdana; white-space-collapse: preserve;">ACTION ITEMS:</b><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><ul style="text-align: left;"><li><span style="background-color: white; color: #333333; text-align: center; white-space-collapse: preserve;"><span style="font-family: arial;">Compile a list of active/current client communications and re-review content against the standards now set forth within the Marketing Rule,</span></span></li><li><span style="background-color: white; color: #333333;"><span style="font-family: arial;">Being sure to evidence this review through the Firm’s client communications/marketing review procedures stated within their compliance manuals, and record keep the review accordingly.</span></span></li><li><span style="background-color: white; color: #333333;"><span style="font-family: arial;">Place an emphasis on enhanced requirements of the rule, such as reviewing their current marketing material to ensure that they can substantiate material statements of fact for such items as testimonials/endorsements, third party ratings, and performance client communications.</span></span></li><li><span style="background-color: white; color: #333333;"><span style="font-family: arial;">If Advisors can not substantiate the data within their client communications, they should either obtain evidence for substantiation immediately or deactivate that client communication. </span></span></li><li><span style="background-color: white; color: #333333;"><span style="font-family: arial;">Keep in mind that active and current client communications can mean your website, social media pages, brochures, stationary, performance marketing, article copies, newsletters, etc.</span></span></li><li><span style="background-color: white; color: #333333;"><span style="font-family: arial;">Review the advertisement violates any of the general prohibitions, taking into consideration the facts and circumstances of the advertisement, the nature of the audience to which the advertisement is directed, the form and content of the advertisement, and whether the Advisor can substantiate any and all claims within the piece. We urge you to review our Marketing Rule 206(4)-1 General Provisions fact sheet regarding these General Prohibitions.</span></span></li><li><span style="background-color: white; color: #333333;"><span style="font-family: arial;">Pull all performance marketing, client communications that contain specific investment advice, and any pieces which contain third-party ratings, rankings, and awards as they each have additional review components outside of the general prohibitions.</span></span></li><li><span style="font-family: arial;">Evidence their retrospective review based on their policies and procedures for marketing reviews, being mindful to adequately notate these new rule components into their review and how it aligns with the Advisors implemented policies and procedures. </span></li></ul></blockquote><p style="text-align: left;"><span style="font-family: Arial, Verdana;"><span>Please note, this process will assist the Advisor in adequately answering the ADV questions under 5L. We have included AdvisorAssist’s Marketing Fact Sheets to assist you in this endeavor:</span></span></p><p></p><ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><a href="https://drive.google.com/file/d/188y_4Isw07Clk7Lb4jciPUiiSzkv7vI6/view?usp=sharing"><b>Marketing Rule 206(4)-1 Performance </b></a></span></li><li><span style="font-family: Arial, Verdana;"><b><a href="https://drive.google.com/file/d/13Km2YLVRgG7-3Sm9Ac0-sILZN_1AIAxe/view?usp=sharing">Marketing Rule 206(4)-1 Testimonials, Endorsements and Third Party Rankings </a></b></span></li></ul><p></p><p><span style="color: #333333; font-family: Arial, Verdana;"><span style="white-space-collapse: preserve;">AdvisorAssist would like to remind Advisors that it is prudent to ensure the Firm’s process of record keeping is consistent with the requirements of the Advisers Act. The record keeping obligation does not differentiate between various media, including paper and electronic communications, such as emails, instant messages, and other Internet communications that relate to the adviser’s recommendations or advice.
As the Division starts its first year of exams with the new Marketing Rule components, and Advisors continue to navigate the Rule and take advantage of its newer components (such as utilizing testimonials and endorsements) AdvisorAssist urges Advisors to keep an eye on the <b><a href="https://www.sec.gov/investment/marketing-faq">Marketing Rule FAQ</a></b> for updates. Should you have any questions, please contact your AdvisorAssist Consultant for further information.</span></span></p><p><br /></p><p><br /></p><p> </p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><br /></div></span></div></span></blockquote>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-64136063104275896032023-06-28T12:52:00.000-04:002023-06-28T12:52:11.707-04:00SEC Proposes Changes to Regulation S-P to Enhance Protection of Customer Information<p> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>SEC Proposes Changes to Regulation S-P to Enhance Protection of Customer Information</b></span></span></p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">On March 15, 2023, the SEC announced proposed changes to Regulation S-P, with a comment period to remain open for 60 days and a compliance date of one year from publication. As we monitor the progress of this proposal, we would like to provide you with some critical information on the current rule and this proposal.
<b><u>Regulation S-P Background: </u></b>
Since its original adoption in 2000, Regulation S-P’s intent is to protect the privacy of consumer financial information, but with changing technology and industry changes, including remote work, the SEC believes the regulation is in need of updates.
Currently Regulation S-P requires Advisors to notify clients affected by certain types of data breaches that <b><i>could</i></b> put clients at risk for identity theft, to implement policies and procedures to protect client data and records, and how to appropriately dispose of consumer report information.</span></span> </div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div><div style="text-align: center;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Click <a href="https://www.sec.gov/files/34-97141-fact-sheet.pdf"><b>here</b></a> to learn more about Regulation S-P Enhancements</span></span></div><div style="text-align: left;"><br /></div></span></div></span><b style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">The New Proposal Enhancements:</b><br /><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><br /></b></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Customer Notification: </b>Creating a minimum standard for Advisors to provide data breach notifications - as soon as reasonably possible, but no later than 30 days. </span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">All affected individuals whose sensitive customer information was or is reasonably likely to have been accessed or used without authorization would need to be notified. </span></span></div></span></div></span></blockquote></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"></span><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><br /></b></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Incident Response Program: </b>Requiring Advisors to adopt written policies and procedures for an incident response program to address unauthorized access to or use of customer information.<b> </b></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><br /></b></span></span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">The program would need to be reasonably designed to detect, respond to, and recover from unauthorized access to or use of customer information with applicable controls in place. These requirements may also be placed on Advisor’s relationships with third party service providers. </span></span></div></span></div></span></blockquote></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"></span><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><br /></b></span></span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><b style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Enhanced Safeguards and Disposal Rule: </b><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Creating a synonymous definition of “customer information” across the Safeguard and Disposal rules. </span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><br /></b></span></span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Customer information would now refer to a record containing “nonpublic personal information”) about “a customer of a financial institution,” whether in paper, electronic or other form that is handled or maintained by the covered institution or on its behalf. This definition would cover nonpublic personal information that a covered institution collects about its own customers and nonpublic personal information it receives from a third party financial institution about customers of that financial institution.</span></span></div></span></div></span></blockquote></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"></span><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><br /></b></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Exemption to the Annual Privacy Delivery: </b>Offering an exemption for Advisors if the firm satisfies two conditions. </span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><br /></b></span></span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">First, the Advisor can only provide nonpublic personal information to nonaffiliated third parties in accordance with the exceptions set forth in Regulation S-P, and</span></span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Second, the Advisor cannot have changed its policies and practices with regard to disclosing nonpublic personal information from the most recent delivery of its privacy notice.</span></span></div></span></div></span></blockquote></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"></span><span style="background-color: white;"></span><span style="background-color: white;"></span><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b><br /></b></span></span></div></span></div></span></blockquote><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space-collapse: preserve;">Should the proposed rule be adopted by the SEC, Advisors will have a period of time to comply with the rule. AdvisorAssist will work with you to customize your policies as needed to ensure your policies address the final rule..</span><br /><p><br /></p><p> </p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><br /></div></span></div></span></blockquote>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-9037385818805857962023-06-26T13:01:00.001-04:002023-06-26T13:08:09.959-04:00Risk Alert: Safeguarding Customer Records and Information at Branch Offices <p> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space-collapse: preserve;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;"><b>Risk Alert: Safeguarding Customer Records and Information at Branch Offices</b></span></span> </p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;">On April 26, 2023 the Division of Exams (EXAMS) released a <b><a href="https://www.sec.gov/files/risk-alert-safeguarding-info-branch-offices-042623.pdf" target="_blank">Risk Alert: Safeguarding Customer Records and Information at Branch Offices. </a></b>This Risk Alert highlights the importance for Advisors to maintain written policies and procedures for safeguarding customer records and information at branch office locations in compliance with the Safeguards Rule of Regulation S-P (Safeguard Rule). As a reminder, the <b><a href="https://www.ecfr.gov/current/title-17/chapter-II/part-248">Safeguards Rule of Regulation S-P </a></b>states:
</span><i><span style="font-size: xx-small;">“Firms must adopt written policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information. These written policies and procedures must be reasonably designed to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of customer records and information, and protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer.”</span></i><span style="font-size: 12px;">
EXAMS’ assessment of Advisor’s compliance with the Safeguard Rule, led the Staff to notating that generally most Advisor’s implemented policies and procedures at their primary office locations, but they were not enforced at branch locations. Common deficiencies discovered by the Staff include:</span></span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;"><br /></span></span></span></span></div></span></div></span><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;"><b>Vendor Management</b>: No reasonable assurance that branch offices performed third party vendor due diligence and/or oversight resulting in faulted security settings and systems which can result in unauthorized access to client personally identifiable information and related records. In certain instances, Firm’s did not guide or assist branch offices in its selection of vendors, prompting further disparity.</span></span></span></span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;"><b>Data Classification:</b> Although procedures often existed for data classification within books and records policies, they were not always applied to branch offices resulting in a failure to identify and control customer records and information.</span></span></span></span></div></span></div></span><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;"><b>Access Management:</b> Policies and procedures regarding password complexity and multi-factor authentication for remote access to Advisor systems existed at the primary office, but not at branch offices. Some branch offices under review were victims of cyber breaches, which may have been deterred had password complexity and multi factor authentication been a factor prior to intrusion.</span></span></span></span></div></span></div></span><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;"><b>Technology Risk:</b> Although primary office locations had implemented policies and procedures for inventory, patching, and vulnerability management, it did not always carry through to branch offices resulting in out-of-date networks, end of life operating systems, and vulnerabilities through outdated system patching.</span></span></span></span></div></span></div></span></blockquote><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"></span><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;">
In review of these observations, key takeaways from the Risk Alert can be summarized as the following:
<b>Enhance Branch Office Inspections</b> – As part of an Advisor’s oversight, branch office location reviews should be conducted periodically to ensure compliance with securities laws and adherence to firm policies and procedures. Each of the prescribed items above, should be review factors when completing the assessment of the branch location. Examples may be:
<ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;">Collecting a list of all third-party vendors utilized at the branch and the vendors applicable due diligence.</span></span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;">Completing a forensic test of the branch office’s books and records to ensure compliance with the Advisor’s policies.</span></span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;">Collecting a list of all branch hardware, including personal devices utilized for business purposes, used by supervised persons to complete a technology audit for patches, updates, disclosure of hardware used, etc.</span></span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;">Completing a technology entitlement review to ensure that supervised persons only have access to systems they need to complete their job function and limit access to customer records and information.</span></span></span></span></li></ul></span></span><span style="font-size: 12px; white-space-collapse: preserve;">If the branch office is not in line with primary branch policies and procedures, remediation action should be taken and potentially logged as a compliance violation accordingly.</span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><b>Enhancing Vendor Due Diligence </b>– Vendor due diligence and oversight is a hot button item for regulators, and as such a Firm should highly scrutinize their process. Advisors must implement policies and procedures for performing initial and ongoing vendor due diligence and oversight for third party service providers and vendors. Best practices for completing vendor due diligence could include:</span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;"><ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;">Creating a list of preferred vendors of the firm that supervised persons are required to follow whether in a primary office or branch location.</span></span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="white-space-collapse: preserve;"><span style="font-size: 12px;">Creating a process for requesting new vendors be utilized at both the primary and branch office location.</span></span></span></span></li></ul></span></span><span style="font-size: 12px; white-space-collapse: preserve;"><b>Creating a process for ongoing due diligence of vendors - </b></span><span style="font-size: 12px; white-space-collapse: preserve;">An Advisor’s initial and ongoing due diligence process of vendors should be streamlined and concise across all vendors. Utilization of tools such as a questionnaire can assist in obtaining data and documentation. An emphasis should be placed on cybersecurity and client data protection when dealing with third party vendors such as:
<ul style="text-align: left;"><li><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">Obtaining the vendor’s Information Security Program with an understanding of any potential incidents and applicable employee training.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">An understanding of vendor’s risk assessments and testing such as external penetration testing, or audit reports (SAS 70, SSAE 16, etc.)</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">An understanding of change management and service reliability such as Recovery Time Objectives (RTO) or Recovery Point Objectives (RPO), geographic areas of operation, etc.</span></span></span></li><li><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;">Business Continuity/Disaster Recovery procedures and backup plans.</span></span></span></li><li>Network and data security such as data encryption, client data disposal procedures, client privacy especially in cases of subpoenas, network patching, etc.</li></ul></span><span style="font-size: 12px; white-space-collapse: preserve;">When implementing policies and procedures, not only must they comply with Regulation S-P, but Advisors need to ensure compliance of the entire organization. Failure to follow implemented policies and safeguards can result in cyber intrusions, and deficiencies in compliance with regulations, both of which can be detrimental to an Advisor’s reputation and potentially costly for both the Advisor and client.</span></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span><span style="font-size: 12px; white-space-collapse: preserve;"><br /></span><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space-collapse: preserve;">Should you have questions, please don’t hesitate to reach out today.</span></span><span style="font-family: Arial, Verdana;"> </span></span></span></div></span></div></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-56482947882396349662023-05-31T13:39:00.001-04:002023-05-31T13:39:23.026-04:00Breach of Fiduciary Duty<p> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space: pre-wrap;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space: pre-wrap;"><b>Breach of Fiduciary Duty</b></span></p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Advisors have a fiduciary duty to conduct reasonable due diligence for any investment that the advisor buys, sells, or holds in a client's portfolio. Due diligence is paramount in helping advisors find the appropriate investment opportunity by carefully examining all aspects of an investment before recommending it to a client. An effective due diligence process is not centered around performance; instead, it requires a comprehensive and holistic approach and must (at a minimum) entail consideration of the following: human capital, driving principles, process, conflicts of interest, competitive landscape, and performance. Certain products or opportunities may present additional complexities and require a heavier hand and a more detailed investigation, review, or audit of the investment opportunity.
Additionally, as a fiduciary, advisors must manage clients' portfolios in accordance with their investment strategy/mandate and, as necessary, provide an explanation for material deviations from the agreed-upon directive. So not only does an Advisor need to understand the products it is recommending, but it also needs to understand what products will be most suitable for a specific client.
Recently the SEC announced that it charged an advisory firm and its part-owner and investment advisor representative (IAR) for breach of fiduciary duty in connection with the use of leveraged exchange traded funds (ETFs). The Advisor and IAR invested client assets in leveraged ETFs for extended periods of time, significant concentrations, despite warnings in the funds’ prospectuses that the products carried unique risks, were designed to be held for no more than a single trading day, and required frequent monitoring. Because the Advisor and IAR did not understand the product itself, they did not meet their fiduciary duty in conducting reasonable due diligence on the investment opportunity. According to the SEC’s announcement, the Advisor and IAR additionally did not conduct ongoing due diligence and portfolio monitoring to ensure these products continued to meet the clients’ best interests. The full SEC announcement can be read <a href="https://www.sec.gov/news/press-release/2023-88?utm_medium=email&utm_source=govdelivery">here.</a>
<br /></span></span></div><div style="text-align: left;"><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Should you have questions, please don’t hesitate to reach out today.</span></span><span style="font-family: Arial, Verdana;"> <div><span style="font-size: 12px; white-space: pre-wrap;"> </span></div></span></div></span></div></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-89870741360916723472023-04-21T15:54:00.003-04:002023-04-21T16:05:28.828-04:00Annual Retrospective Review – What does it Mean for Advisors?<p> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space: pre-wrap;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space: pre-wrap;"><b>Annual Retrospective Review - What Does it Mean for Advisors?</b></span></p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="font-family: Arial, Verdana; text-align: left;"><div><span style="font-size: 12px; white-space: pre-wrap;">The DOL’s <a href="https://us.eversheds-sutherland.com/portalresource/20201218FinalExemption(PTE2020-02).pdf">Prohibited Transaction Exemption (PTE) 2020-02</a> (Improving Investment Advice for Worker’s & Retirees) gives registered investment Advisors and their representatives the ability to receive compensation when providing investment advice to ERISA retirement plans, participants, and IRA owners. AdvisorAssist has previously provided guidance on the requirements of PTE 2020-02 in the corresponding <a href="https://blog.advisorassist.com/2021/07/rollover-recommendations-improving.html">blog post</a>, but this post elaborates on the regulatory requirement for Investment Advisors regarding the Annual Retrospective Review. As a reminder, Advisors must conduct an Annual Retrospective Review and record their findings in a written report within six (6) months after the end of the year, or by June 30th.</span></div><div><span style="font-size: 12px; white-space: pre-wrap;"><br /></span></div><div><span style="font-size: 12px; white-space: pre-wrap;">The DOL has published <a href="https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/new-fiduciary-advice-exemption">FAQs</a>, which provide additional guidance regarding an Advisor’s requirement to perform an Annual Retrospective Review of their covered recommendations in Question 19. Defined, the Annual Retrospective Review is a review that must be reasonably designed to assist the Investment Advisor in detecting and preventing violations of, and achieving compliance with, the Impartial Conduct Standards and the Advisor’s policies and procedures. Whichever methodology the Advisor chooses for their review, and its applicable results, must be reduced to a written report. This written report can either be provided to a Senior Executive Officer of the firm, or as circumstances require, created by the Senior Executive Officer in cases of smaller sized firms.. The officer required to certify the report will be attesting that they have reviewed the report in its entirety, inclusive of any violations, and that the Advisor has policies and procedures in place prudently design to achieve compliance with the exemption. Investment Advisors are required to retain the report, certification, and applicable supporting data for a period of six years along with the ability to produce these documents to the DOL within ten business days if requested.</span></div><div><span style="font-size: 12px; white-space: pre-wrap;"><br /></span></div><div><span style="font-size: 12px; white-space: pre-wrap;">When Investment Advisors are reviewing, assessing, and documenting the Firm’s overall control environment in regards to PTE 2020-02 and the Impartial Conduct Standards, they should review their current control framework by asking such questions as:</span></div></div><div style="text-align: left;"><ul style="text-align: left;"><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Does the Advisor have a prudent process to modify current policies and procedures as business, regulatory and legislative changes and events dictate? </span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Does the Advisor have the ability to test the effectiveness of the policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with the conditions of this exemption?</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">When reviewing Advisor’s current internal work flows, do they align with what is currently published in written manuals?
</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Does the Advisor have policies and procedures which ensure compliance with the Impartial Conduct Standards including:</span></li><ul><li><span style="font-family: Arial, Verdana; font-size: 12px; white-space: pre-wrap;">How an Advisor investigates and evaluates investments, provides advice, and the requirement to act prudently in their recommendations?</span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">That an Advisor acts with loyalty when making recommendations and never places their own interest ahead of the client?</span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">That an Advisor charges no more than reasonable compensation and complies with federal best execution laws?</span></span></li><li><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">That an Advisor can not make misleading statements about investment transactions, or related data points, to entice clients into transactions?</span></span></li></ul><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Has the Advisor mitigated any conflicts of interest that may affect them, and adequately documented how those conflicts are mitigated?
</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Does the Advisor provide applicable written acknowledgments of the firm's ERISA fiduciary status?</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Does the Advisor have a process in place to identify all covered transactions during the review timeframe, and furthermore delineate those results into solicited transactions versus client-initiated transactions?
</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">For any client-directed rollovers, does the firm provide clients with a separate and distinct acknowledgment form where the client attested that the firm did not solicit the rollover?</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">How is the Advisor tracking document and disclosure delivery, and can the Advisor prove all applicable documents and disclosures were delivered when required?</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;">Does each solicited transaction document the specific reasons for recommendations made to retirement clients, applicable due diligence conducted, costs associated, and whether the recommendation was in the client’s best interest?</span></li></ul><span style="font-family: Arial, Verdana;"><span style="font-size: 12px; white-space: pre-wrap;"></span></span></div><div style="font-family: Arial, Verdana; text-align: left;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">PTE 2020-02 does contain the ability for Investment Advisors to correct certain violations within 90 days after the Investment Advisor learns, or reasonably should have learned, of the violation. Assuming the violation did not cause investment losses to the retirement client, and/or the Investment Advisor has made the client whole, the firm needs to notify the Department within 30 days, and the violation and correction must be specifically set forth in the written report of the retrospective review. Although not an exhaustive list, certain examples of violations could be:</span></div><div style="text-align: left;"><ul style="text-align: left;"><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">A transaction that inherently violates the Impartial Conduct Standards, and does not align to the fiduciary standards placed on representatives.</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">Not having adequate policies and procedures to comply with all components of PTE 2020-02 or an update mechanism to enhance for any corresponding internal or external change required such as new business lines, enhanced regulations, etc.</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">Not disclosing material conflicts and/or not providing required documentation and disclosures to the client during the transaction process which could have a material impact on their decision making such as:</span></li><ul><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">Not providing a comparable review of the costs associated with the current plan versus the proposed investment solution such as internal expense ratios, advisory fees, custodial fees, commissions, etc.</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">Not providing a comparable review of the account characteristics of the current plan versus the proposed investment solution i.e legal protections, surrender timeframes, loan applicability, and/or tax ramifications.</span></li><li style="font-family: Arial, Verdana;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">Not providing a comparable review of the characteristics of the current plan’s investment options versus the proposed investment solution such as product type availability or, share class availability.</span></li></ul></ul></div></span></div></span><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333;"><div style="font-family: Arial, Verdana; text-align: left;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">With the results of the Retrospective Review in hand, Investment Advisors can find more effective ways to ensure their representatives are providing investment advice that aligns to the Impartial Conduct Standards, and strengthen the firm’s policies and procedures. </span><span style="font-size: 12px; white-space: pre-wrap;">AdvisorAssist Consultants are here and ready to assist Adviser’s in any compliance capacity needed. Should you have questions, please don’t hesitate to reach out today.</span></div></span></div></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-54969472983059365042023-03-28T17:39:00.003-04:002023-03-28T17:39:55.703-04:00SEC Risk Alert: Observations from Examinations of Newly-Registered Advisers<p> <span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space: pre-wrap;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><p style="text-align: center;"><span style="background-color: white; color: #333333; font-family: Arial, Verdana; font-size: 12px; white-space: pre-wrap;"><b>SEC Risk Alert: Observations from Examinations of Newly-Registered Advisers</b></span></p><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421" style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;">On March 27, 2023 the Securities and Exchange Commission’s Division of Examinations (the Division) released a <a href="https://www.sec.gov/files/risk-alert-newly-registered-ias-032723.pdf">Risk Alert </a>regarding its observations from newly-registered adviser’s introductory examinations. Since 2013, the Division has prioritized exams for newly-registered advisers within a reasonable period of time (generally within the first two years) after SEC registration.
These exams give the Division an opportunity for early engagement to provide advisers with the following:</span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="font-size: 12px; white-space: pre-wrap;">Provide the Adviser information regarding the Division’s examination program.</span></li><li><span style="font-size: 12px; white-space: pre-wrap;">Conduct preliminary risk assessments in order to understand the Adviser’s operations and risk characteristics.</span></li><li><span style="font-size: 12px; white-space: pre-wrap;">Determine whether conflicts of interest have been adequately identified, addressed, and disclosed in a full and fair capacity for client consent.</span></li><li><span style="font-size: 12px; white-space: pre-wrap;">Promote compliance with applicable regulation, such as the Advisers Act, and through effective compliance programs.</span></li></ul></div><div style="text-align: left;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;">The examination itself generally involves documentation requests for a defined time period and interviews with Adviser staff to determine the tone of compliance culture. Requests generally consist of the following items:</span></div><div style="text-align: left;"><span style="font-size: 12px; text-align: center; white-space: pre-wrap;"><br /></span></div></span></div></span><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;"><b>General Information</b> – Organizational charts, eligibility for SEC registration documentation, ownership/control documentation, information regarding current and former personnel, financial statements, and any past, present, or potential litigation or arbitration cases.</span><span style="background-color: transparent;"> </span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;"><b>Demographics and Data </b>– Adviser’s offered services, types of clients serviced and whether the Adviser maintains discretionary or non-discretionary authority, a current client list with their applicable holdings/transactions, what personnel services and oversees accounts, AUM data, third-party service providers, and investment strategies. Part of this request may require documents such as contracts, agreements, statements, etc.</span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;"><b>Compliance Program and Risk Management</b> – Compliance program documents such as the Adviser’s compliance policies and procedures, internal controls, code of ethics, and business continuity plan. </span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;"><b>Communications</b> –Advertising or marketing pieces used to inform or solicit new and existing clients such as brochures, social media, websites, blogs, or mailings.</span></div></span></div></span></blockquote><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"></span><span style="color: #333333; font-family: Arial, Verdana;"></span><span style="color: #333333; font-family: Arial, Verdana;"></span><span style="color: #333333; font-family: Arial, Verdana;"></span><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;">
</span><span style="font-size: 12px; white-space: pre-wrap;">Throughout the Division’s examination process, they have observed some consistent deficiencies brought forward through the alert: </span></div><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;"><br /></span></div></span></div></span><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><b style="font-size: 12px; white-space: pre-wrap;">Compliance Policies and Procedures</b><span style="font-size: 12px; white-space: pre-wrap;"> – Programs were missing applicable risk areas, policies existed without controls or procedures to achieve them, lack of enforcement of policies and procedures, annual testing that did not prove effectiveness of implementation, purchased policies and procedures that were not further tailored to the Adviser’s operations and business , insufficient resources dedicated to compliance, outsourced services not properly understood or supervised, undisclosed and therefore unmitigated conflicts of interest, and inadequate business continuity plans, including succession plans.</span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;"><b>Disclosure Documents and Filings</b> – Disclosure documents contained omissions or inaccuracies relating to fees and compensation, business and operations, services, disciplinary information, conflicts of interest, and web/social media presence. Required updates such as material changes, or annual filings, were also noted as either being untimely or not completed.</span></div></span></div></span></blockquote><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;"><b>Marketing</b> – Advisers could not substantiate claims in their marketing material, or material appeared to contain false and misleading information, especially concerning advisory personnel’s professional experience, third party rankings/awards, and performance. </span></div></span></div></span></blockquote><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"></span><span style="color: #333333; font-family: Arial, Verdana;"></span><span style="color: #333333; font-family: Arial, Verdana;"></span><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;">
The Division will continue to make initial exams a priority for newly-registered advisers, and urges Firms to review the applicable resource attachment offered within the <a href="https://www.sec.gov/files/risk-alert-newly-registered-ias-032723.pdf">Risk Alert.</a> This resource page links to rules, regulatory actions, enforcement actions, guidance, FAQs, etc. released by the SEC in an effort to provide guidance. AdvisorAssist Consultants are here and ready to assist Adviser’s in any compliance capacity needed. Should you have questions, please don’t hesitate to reach out today.</span></div></span></div></span><span style="background-color: white;"><div style="text-align: center;"><span style="color: #333333; font-family: Arial, Verdana;"></span><span style="color: #333333; font-family: Arial, Verdana;"><div style="text-align: left;"><span style="font-size: 12px; white-space: pre-wrap;"></span></div></span></div></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-63737881175123077442023-03-21T12:18:00.000-04:002023-03-21T12:18:38.499-04:00Preparing for the Future Regulatory Landscape: Navigating SEC Regulations and Enforcement under Gary Gensler's Leadership<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space: pre-wrap;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><div style="background-color: white; color: #333333; font-family: Arial, Verdana; text-align: center;"><span style="font-size: x-small;"><br /></span></div><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421"><span><div style="text-align: center;"><span><span style="white-space: pre-wrap;"><b>Preparing for the Future Regulatory Landscape</b></span></span></div><div style="text-align: center;"><span><span style="white-space: pre-wrap;">Navigating SEC Regulations and Enforcement under Gary Gensler's Leadership</span></span></div><div><span><span style="white-space: pre-wrap;"><br /></span></span></div><span style="white-space: pre-wrap;">AdvisorAssist, LLC, the leader in driving registered investment advisor (RIA) independence by providing comprehensive consulting services, anticipates a significant number of firms will begin to feel the impact of the flurry of proposed SEC regulations. As these rules are finalized and adopted, risk profiles will be significantly impacted from a regulatory, compliance, and operational perspective. The current rule proposals in the pipeline address the following:
</span><ul style="text-align: left;"><li style="white-space: pre-wrap;"><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421"><span style="white-space: pre-wrap;">Cybersecurity Risk Management </span></span></li><li><span><span style="white-space: pre-wrap;">Privacy of Consumer Financial Information and Safeguarding Customer Information</span></span></li><li style="white-space: pre-wrap;"><span><span style="white-space: pre-wrap;">Safeguarding Advisory Client Assets </span></span></li><li style="white-space: pre-wrap;"><span><span style="white-space: pre-wrap;">Outsourcing by Investment Advisers </span></span></li><li style="white-space: pre-wrap;"><span><span style="white-space: pre-wrap;">Environmental, Social, and Governance Disclosures</span></span></li><li style="white-space: pre-wrap;"><span><span style="white-space: pre-wrap;">Private Fund Advisers; Documentation of Compliance Review</span></span></li></ul><div><span style="white-space: pre-wrap;">Further, under the leadership of SEC Chairman Gary Gensler, AdvisorAssist is observing an upward trend in more rigorous and lengthy examinations, ultimately being evidenced by a heightened enforcement environment.
RIAs and their Chief Compliance Officers need to stay informed of ongoing developments of these rule proposals and remain proactive to ensure firms are prepared to address the SEC and the future of the regulatory landscape. </span></div></span></span><div><br /></div>Jennifer Krakowerhttp://www.blogger.com/profile/06192620533403280759noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-53984195188081564402023-03-08T17:21:00.000-05:002023-03-08T17:21:14.637-05:00Series Exam Changes Effective June 12, 2023<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space: pre-wrap;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><h2 style="background-color: white; color: #333333; font-family: Arial, Verdana; line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: arial; font-size: small;"><span style="white-space: pre-wrap;">Series Exam Changes Effective June 12, 2023</span></span><span style="font-family: arial; font-size: small;"><span style="white-space: pre-wrap;">
</span></span></h2><div style="background-color: white; color: #333333; font-family: Arial, Verdana; text-align: center;"><span style="font-size: x-small;"><br /></span></div><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421"><span style="white-space: pre-wrap;">Today, the North American Securities Administrators Association (NASAA) <a href="https://www.nasaa.org/67574/nasaa-announces-passing-scores-associated-with-new-exam-test-specifications/" target="_blank">announced</a> the corresponding results to their job analysis study of the Series 65 and 66 examinations. These changes will affect both content specifications of the exams, and an adjustment to the passing score for the Series 65.
Currently, the passing score of the Series 65 requires at least 94 of 130 questions to be answered correctly, with a passing score of 72%. The adjustment will now require the candidate to answer 92 of 130 questions correctly, or a passing score of 70%. There will be no adjustment in scoring for the Series 66 examination.
Content updates will include enhancements to each exam to align questions with the <a href="https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf" target="_blank">Secure Act 2.0</a>. Additional topics have been added, while other topic areas have been modified or deemphasized. All June updates to test specifications can be reviewed below at the test’s respective link:
<ul style="text-align: left;"><li><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421"><span style="white-space: pre-wrap;"><a href="https://www.nasaa.org/wp-content/uploads/2023/02/Series-65-Outline-June-2023.pdf" target="_blank">Series 65</a></span></span></li><li><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421"><span style="white-space: pre-wrap;"><a href="https://www.nasaa.org/wp-content/uploads/2023/02/Series-66-Outline-June-2023.pdf" target="_blank">Series 66</a></span></span></li></ul>Candidates are urged to review their examination windows, and adjust test scheduling accordingly based on the announcement. Should you have any questions, please contact your AdvisorAssist Consultant.</span> <p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><br /></p></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-44019781997481902242023-02-27T10:42:00.003-05:002023-02-27T10:42:52.267-05:00Industry Resistance to the SEC’s Proposed Outsourcing Rule<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space: pre-wrap;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><h2 style="background-color: white; color: #333333; font-family: Arial, Verdana; line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: arial; font-size: small;"><span style="white-space: pre-wrap;"><span id="docs-internal-guid-7679be88-7fff-f82c-67bd-dda65014365d" style="font-weight: normal;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline;">Industry Resistance to the SEC’s Proposed Outsourcing Rule</span></span>
</span></span></h2><div style="background-color: white; color: #333333; font-family: Arial, Verdana; text-align: center;"><span style="font-size: x-small;"><br /></span></div><span style="font-family: times;"><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: black; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Back in October, the SEC proposed a new rule that would amend the Investment Advisers Act of 1940 to create due diligence and monitoring provisions for advisors that hire a third party that would provider a “covered function” to its clients. In developing the proposal the SEC has stated that purpose of the rule is to protect against potential investor harm if advisors don’t properly vet and monitor their service providers. The SEC has defined these covered functions as those that are essential to providing financial advice in compliance with federal security laws and that could materially harm clients if they were performed negligently or not at all. Over the years AdvisorAssist has communicated the importance of a prudent due diligence process when selecting service providers, while also delivering compliance testing and risk assessments to assist with your at least annual review of such vendors.</span></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><b id="docs-internal-guid-729667d8-7fff-2769-2c2a-3a2e89471e35" style="font-weight: normal;"><br /></b></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: black; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">As one would imagine, the proposed rule resulted in industry push back. The public comment period for the proposed rule has since passed as of December 27th, but not after the SEC received approximately 90 letters. Industry groups such as the Investment Advisors Association, the Securities Industry and Financial Markets Association, the Institute for the Fiduciary Standard and the Money Management Institute pointed out that the proposal is unnecessary due to an advisor’s fiduciary duty to its clients, and that if approved the rule would do little to actually provide additional protection to investors. Many of the other comments spoke to the cost of complying with the rule if approved, especially in the case of smaller firms, as they would be duplicative to existing rules and regulations.</span></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><b style="font-weight: normal;"><br /></b></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: black; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">There were certain positive comments submitted as well. Investor advocates like the Public Investors Advocate Bar Association and the North American Securities Administrators Association, which represents state security regulators, feel the rule could go further, questioning the exemption for certain outsourced functions.</span></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><b style="font-weight: normal;"><br /></b></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: black; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Time will tell whether the proposed rule will be approved as is, modified, or not pass at all. Rest assured AdvisorAssist will continue to monitor the situation and if ultimately approved, we will be working with you on the impact it will have on your firm and compliance program.</span></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><b style="font-weight: normal;"><br /></b></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: black; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">For additional information regarding the proposed rule and fact sheet please see the links below:</span></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><b style="font-weight: normal;"><br /></b></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><a href="https://www.sec.gov/rules/proposed/2022/ia-6176.pdf" style="text-decoration: none;"><span style="background-color: transparent; color: #1155cc; font-style: normal; font-variant: normal; font-weight: 400; text-decoration-skip-ink: none; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Proposed rule: Outsourcing by Investment Advisers</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><a href="https://www.sec.gov/files/ia-6176-fact-sheet.pdf" style="text-decoration: none;"><span style="background-color: transparent; color: #1155cc; font-style: normal; font-variant: normal; font-weight: 400; text-decoration-skip-ink: none; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Fact Sheet: Outsourcing by Investment Advisers</span></a></p><div><br /></div></span><span id="docs-internal-guid-a3840886-7fff-abe8-3369-33a8ebfc1644"><span><br /></span><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Please contact your AdvisorAssist Consultant should you have any questions.</span></span></p></span></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-91149402613136277202023-02-22T16:40:00.003-05:002023-02-23T09:14:20.773-05:00Safeguarding Rule for Registered Investment Advisors<p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; color: #193e62; display: inline; font-family: arial; font-size: 12px; margin-bottom: 1em; margin-left: 1em; outline: none; white-space: pre-wrap;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 1px solid rgb(222, 222, 222); margin: 0px 4px 4px 0px; padding: 6px;" width="148" /></a></p><h2 style="background-color: white; color: #333333; font-family: Arial, Verdana; line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: arial; font-size: small;"><span style="white-space: pre-wrap;">Safeguarding Rule for Registered Investment Advisors</span></span><span style="font-family: arial; font-size: small;"><span style="white-space: pre-wrap;">
</span></span></h2><div style="background-color: white; color: #333333; font-family: Arial, Verdana; text-align: center;"><span style="font-size: x-small;"><br /></span></div><span id="docs-internal-guid-ada0562e-7fff-81f0-972e-d4ff28da6421"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">On February 15, the Securities and Exchange Commission (SEC) published a </span><a href="https://www.sec.gov/news/press-release/2023-30?utm_medium=email&utm_source=govdelivery" style="text-decoration-line: none;"><span face="Calibri, sans-serif" style="color: #0563c1; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">press release</span></a><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> regarding an amendment and redesignation of rule </span><a href="https://www.sec.gov/rules/final/2009/ia-2968.pdf" style="text-decoration-line: none;"><span face="Calibri, sans-serif" style="color: #0563c1; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">206(4)-2 </span><span face="Calibri, sans-serif" style="color: black; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Custody of Funds or Securities of Clients by Investment Advisers</span></a><span style="color: #0563c1;"><u>,</u></span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> the </span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Custody Rule</span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, as part of the Investment Advisers Act of 1940 and amend certain related record keeping and reporting obligations. This proposal would create new rule </span><a href="https://www.sec.gov/rules/proposed/2023/ia-6240.pdf" style="text-decoration-line: none;"><span face="Calibri, sans-serif" style="color: #0563c1; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">223-1</span></a><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Safeguarding Advisory Client Assets, the Safeguarding Rule, with similar intent to continue protecting assets from being lost, misused, stolen, misappropriated, or from an adviser’s insolvency or bankruptcy. </span></span></p><span><br /></span><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span>Key takeaways from the publication include the following:</span></span></p><div><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div></span><span id="docs-internal-guid-a3840886-7fff-abe8-3369-33a8ebfc1644"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Broadening in Scope</span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">: Currently, the Custody Rule focuses on client funds and securities, but this proposal takes it one step further by including other positions held by a client that an adviser has possession or could obtain possession, of and its related activities. The definition of custody will also be enhanced to include an adviser’s discretionary authority to trade client assets, but this may not trigger an annual surprise exam component.</span></span></p><span><br /></span><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Enhanced Protections: </span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Advisers would need written agreements with qualified custodians regarding possession and control of the assets, including reasonable assurances regarding the protection of client assets, particularly when the custodian may have a conflict of interest. Some of these contractual terms relating to record keeping, client account statements being sent to the adviser versus conducting a reasonable basis due inquiry test, internal control reports, and the adviser’s agreed-upon level of authority to effect transactions in client accounts. </span></span></p><span><br /></span><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Recordkeeping and ADV Updates: </span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">As with most rule updates, enhanced record-keeping and additional disclosures will be included. The proposal would streamline and enhance the ADV’s Item 9 with additional reporting requirements regarding qualified custodians and reporting applicable client assets, reliance on exemptions, and physical holdings, while streamlining Item 9A and 9B, and Item 9’s surprise examination components for which the SEC sees consistent errors within. </span></span></p><span><br /></span><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span>With record keeping, rule 223-1 would require the following documents to be maintained, whether that be with the adviser or as part of the contractual obligations with the qualified custodian:</span></span></p><span><br /></span><ul style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="font-family: "Noto Sans Symbols", sans-serif; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span><i>Client Communication</i></span></span></p></li><li aria-level="1" dir="ltr" style="font-family: "Noto Sans Symbols", sans-serif; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span><i>Account Activity</i></span></span></p></li><li aria-level="1" dir="ltr" style="font-family: "Noto Sans Symbols", sans-serif; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span><i>Client Accounts</i></span></span></p></li><li aria-level="1" dir="ltr" style="font-family: "Noto Sans Symbols", sans-serif; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span><i>Independent Public Accountant Engagements </i></span></span></p></li><li aria-level="1" dir="ltr" style="font-family: "Noto Sans Symbols", sans-serif; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span><i>Standing Letters of Authorization</i></span></span></p></li></ul><span><br /></span><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">There is a lot to digest with respect to this proposal and a lot may change. We will continue to monitor the progress of the rule. The comment period on the proposal will remain open for 60 days and comes with a compliance date of one year from publication. Should you wish to learn more the SEC has provided a </span><a href="https://www.sec.gov/files/ia-6240-fact-sheet.pdf" style="text-decoration-line: none;"><span face="Calibri, sans-serif" style="color: #0563c1; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Fact Sheet</span></a><span face="Calibri, sans-serif" style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. Please contact your AdvisorAssist Consultant should you have any questions.</span></span></p><div><span face="Calibri, sans-serif" style="font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div></span>Gabrielle Magdziarzhttp://www.blogger.com/profile/07260582878212750058noreply@blogger.com0tag:blogger.com,1999:blog-7670130944774258191.post-51184084505652093802023-02-14T15:53:00.002-05:002023-02-14T15:53:15.628-05:00SEC Division of Examinations 2023 Examination Priorities<p style="text-align: left;"> <span style="font-family: arial;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/s961/Untitled+copy.png" style="clear: left; display: inline; font-family: arial; margin-bottom: 1em; margin-left: 1em; white-space: pre-wrap;"><img border="0" data-original-height="810" data-original-width="961" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmTAEOSgeiy3xKD7sbxYKkrGtpb_K_nK9l7_Ej66p7LavHAheVUFjsghiK_Ow7Eg0qceKYwNYBiFmqpZBdZ1O0b-h4PwEtb58E06YXAJJFHVBn6szJGgQdxQWuT3xjMz8QLs1yShAhdOM/w148-h125/Untitled+copy.png" width="148" /></a></p><h2 style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: arial; font-size: small;"><span style="white-space: pre-wrap;">SEC Division of Examinations 2023 Examination Priorities
</span></span></h2><div style="text-align: center;"><br /></div><span style="background-color: white; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Each year, the Division of Examinations (“the Divison”) of the U.S. Securities and Exchange Commission (“SEC”) publishes its </span><a href="https://www.sec.gov/files/2023-exam-priorities.pdf" style="font-family: arial; text-decoration-line: none; white-space: pre-wrap;"><span style="background-color: white; color: blue; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline;">Examination Priorities</span></a><span style="background-color: white; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> for the upcoming year.</span><br /><span style="font-family: Arial;"><span style="font-size: 13.3333px; white-space: pre-wrap;"><br /></span></span><span style="background-color: white; font-family: Arial; font-size: 10pt; white-space: pre-wrap;">The Division conducts its examinations in order to promote compliance and ensure market integrity for investors. To put things into perspective, in 2022, the Division examined approximately 15% of the 15,000-plus registered investment adviser population overseeing more than $125 trillion in assets. In 2022 the SEC filed over 700 actions, with judgments and orders totaling $6.4 billion, $4 billion of which was in civil penalties.</span><br /><span style="font-family: Arial;"><span style="font-size: 13.3333px; white-space: pre-wrap;"><br /></span></span><span style="background-color: white; font-family: Arial; font-size: 10pt; white-space: pre-wrap;">Below are the key elements that we believe are of the utmost importance for registered investment advisors.</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; font-weight: 700; white-space: pre-wrap;">The Marketing Rule</span><br /><span style="font-family: Arial;"><span style="font-size: 13.3333px; white-space: pre-wrap;"><br /></span></span><span style="background-color: white; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Advisers Act </span><a href="https://www.sec.gov/rules/final/2020/ia-5653.pdf" style="font-family: arial; text-decoration-line: none; white-space: pre-wrap;"><span style="background-color: white; color: #1155cc; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline;">Rule 206(4)-1</span></a><span style="background-color: white; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> (Marketing Rule): The SEC had a significant change to their core examination review area with the implementation of the new Marketing Rule. It is critically important for Firms to ensure that they have adopted and implemented written policies and procedures reasonably designed to prevent violations of the new rule. Firms should review their current and prospective marketing material to ensure that they can substantiate material statements of fact for such items as testimonials/endorsements, third party ratings, and performance advertising</span><br /><span style="font-family: Arial;"><span style="font-size: 13.3333px; white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; font-weight: 700; white-space: pre-wrap;">Private Fund Advisors</span><br /><span style="font-family: Arial;"><span style="font-size: 13.3333px; white-space: pre-wrap;"><b><br /></b></span></span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">The SEC will continue their focus on RIAs to private funds, in particular conflicts of interest, calculation, and allocation of fees and expenses, marketing rule compliance especially performance and testimonial marketing, the use of alternative data, and compliance with the Advisers Act section 204A, and custody. The Division released specific risk characteristics they intend to target such as highly leveraged, related BDCs, private equity funds that use affiliated companies and advisory personnel for services, alternative holdings such as crypto and commercial real estate, those that invest or sponsor Special Purpose Acquisition Companies (SPACs); and funds involved in adviser-led restructurings, including stapled secondary transactions and continuation funds.</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; font-weight: 700; white-space: pre-wrap;">Standards of Conduct: Regulation Best Interest, Fiduciary Duty, and Form CRS</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">For RIAs the focus during exams continues to be on the following:</span><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><ul style="text-align: left;"><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial; font-size: 10pt;">Investment advice in regard to products, strategies, and account types</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial; font-size: 10pt;">Disclosures and whether they are all encompassing of material facts and conflicts</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial; font-size: 10pt;">Processes for evaluating reasonably available alternatives, costs and risks, and addressing conflicts</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial; font-size: 10pt;">Factors considered in conjunction with a client’s investment profile</span></span></li></ul></div></blockquote><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">Additionally, exams will also include conflict of interest disclosures and whether the disclosures are sufficient in scope that a client can provide informed consent to the conflict, whether express or implied. The inquiry will focus on whether the firm has tailored and established policies and procedures to identify and periodically review conflicts of interest, in alignment with the Firm’s business model, compensation structure, and product lineup</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">Products on the Division's radar will focus on advice or recommendations regarding complex and leveraged products, high-cost and illiquid products, proprietary products, unconventional strategies, and microcaps. There will also be a focus on senior investors, retirement account rollovers, and 529 plans.</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; font-weight: 700; white-space: pre-wrap;">Environmental, Social, and Governance (ESG) Investing</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">With increasing investor demand for ESG-related products, the Division will continue to focus on advisory services and fund offerings paying close attention to fund operations, disclosures, and whether recommendations are in an investor’s best interest.</span><br /><span style="font-family: Arial;"><span style="font-size: 13.3333px; white-space: pre-wrap;"><b><u><br /></u></b></span></span><span style="font-family: Arial; font-size: 10pt; font-weight: 700; white-space: pre-wrap;">Information Security and Operational Resiliency</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">Due to larger market events, geopolitical concerns, and the proliferation of </span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">cybersecurity attacks, the Division will focus on the Firm’s policies and procedures (especially with Regulations S-P and S-ID), governance practices, and cyber incident responses. Their reviews of policies and procedures will attempt to determine if policies and procedures are reasonably designed to safeguard customer records and information, whether they are housed internally or through a third-party provider.</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; font-weight: 700; white-space: pre-wrap;">Crypto Assets and Emerging Financial Technologies</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">The Division will continue its focus and exams on certain types of investments such as crypto/crypto-related products and services, along with emerging financial technology such as mobile apps, robo-advisors, and additional online solutions.</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">Due to recent events in the crypto asset market, the Division will continue to monitor and select applicable registrants for examination which will focus on the offer, sale, or recommendation of, advice regarding and trading in crypto or crypto-related assets. Furthermore, the Division will assess the following:</span><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><ul style="text-align: left;"><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial; font-size: 10pt;">The registrants’ requirements under the standards of care in crypto or crypto relates assets</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial; font-size: 10pt;">Whether the registrant reviews and updates their compliance and risk practices, and disclosures accordingly</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial; font-size: 10pt;">New or never examined registrants offering crypto or crypto-related assets</span></span> </li></ul></div></blockquote><span style="background-color: white; font-family: Arial; font-size: 10pt; white-space: pre-wrap;">In particular, the Division will focus on the tools and methods offered via digital engagements through RIAs:</span><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><ul style="text-align: left;"><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="background-color: white; font-family: Arial; font-size: 10pt;">Recommendations being provided via electronic channels such as social media or social trading platforms.</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="background-color: white; font-family: Arial; font-size: 10pt;">Whether representations align with Marketing Rule requirements</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="background-color: white; font-family: Arial; font-size: 10pt;">Are applicable disclosures and controls in place</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="background-color: white; font-family: Arial; font-size: 10pt;">Are recommendations being made in the client’s Best Interest</span></span></li><li><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="background-color: white; font-family: Arial; font-size: 10pt;">Risks that may be associated with this method of business practice</span></span></li></ul></div></blockquote><span style="font-family: Arial; font-size: 10pt; font-weight: 700; text-decoration-line: underline; white-space: pre-wrap;">Investment Adviser and Investment Companies</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-family: Arial; font-size: 10pt; white-space: pre-wrap;">Exams of RIAs: Core examination components do not vastly differ from years past. A typical exam includes a review of the compliance program and disclosure documents for topics such as custody, valuation, portfolio management, and brokerage and execution. Conflicts, compliance issues, and oversight regarding fee calculation, additional revenue streams, and excessive fees are additional focus areas noted. Be prepared with your policies and procedures regarding retention and monitoring of electronic communications and third-party due diligence, as they have been added as additional focus items within the report.</span><br /><span style="font-family: arial;"><span style="white-space: pre-wrap;"><br /></span></span><span style="background-color: white; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Please remember that the Division communicates these as PRIORITIES, and should not be relied upon as an all-inclusive list of all focus areas. To read the full report, click here: </span><a href="https://www.sec.gov/files/2023-exam-priorities.pdf" style="font-family: arial; text-decoration-line: none; white-space: pre-wrap;"><span style="background-color: white; color: blue; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline;">Division of Examinations 2023 Examination Priorities.</span></a><br /><span style="font-family: Arial;"><br /><span style="font-size: 13.3333px; white-space: pre-wrap;"><br /></span></span><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: arial; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt;"><a href="https://www.sec.gov/files/2023-exam-priorities.pdf" style="text-decoration-line: none;"><span style="color: black; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><br /><br /></span></a></p></span></div></blockquote><p></p><span id="docs-internal-guid-83c8427e-7fff-2d61-ab2c-cb8706c1aab9"></span>Jennifer Krakowerhttp://www.blogger.com/profile/06192620533403280759noreply@blogger.com0