In order to trade or otherwise access a client’s account held by a custodian, a registered investment adviser must be granted written authorization by the client. Such authorization is generally granted in the form of a power of attorney. Although a power of attorney over a client’s account is necessary for a registered investment adviser to manage the client’s account, it is important for an investment adviser to ensure that the power of attorney is limited to only the functions actually intended by the client and the investment adviser.
Category Archives: Compliance Program
Has your investment advisor conducted a review of its compliance program? Is a consultant led compliance review beyond your budget this year?
Conduct a Self-Directed Annual Review of Your Investment Advisor’s Compliance Program
April 24, 2013
Is your SEC registered investment advisor firm looking for assistance in completing an annual review of its compliance program pursuant to SEC Rule 206(4)-7 or preparing for an SEC examination or audit, but a consultant led annual review or mock investment advisor examination is beyond your investment advisor firm’s compliance budget?
An investment advisor firm registered with the U.S. Securities and Exchange Commission (“SEC”) must meet certain requirements concerning the delivery of the investment advisor firm’s disclosure brochure Form ADV Part 2A. Under SEC Rule 204-3(b), each year, within 120 days of the investment advisor firm’s fiscal year end, the investment advisor firm must deliver to every client an updated disclosure brochure that includes a summary of material changes or deliver to every client a summary of material changes that includes an offer to provide a copy of the updated disclosure brochure and information on how a client may obtain the brochure.
SEC Releases New Identity Theft Red Flag Rules that Will Affect Certain Registered Investment Advisers
April 16, 2013
As information technology and electronic communication continue to expand, identity theft poses an increasingly common threat to individuals. On April 10, 2013, the U.S. Securities and Exchange Commission (“SEC”) voted unanimously to adopt rules requiring broker-dealers, mutual funds, investment advisers, and certain other entities regulated by the SEC to adopt programs to detect red flags and prevent identity theft. These rules, jointly adopted with the Commodity Futures Trading Commission (“CFTC”), were adopted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), which amended the Fair Credit Reporting Act of 1970 (“FCRA”) to add the SEC to the list of federal agencies that must jointly adopt and individually enforce identity theft red flags rules.
By now, a registered investment adviser with a December fiscal year end should have filed its Form ADV annual updating amendment that is due each year within 90 days of the investment adviser’s fiscal year end. An investment adviser needs to understand that failure to update the Form ADV, as required by the Form ADV General Instructions, is a violation of U.S. Securities and Exchange Commission (“SEC”) rules and similar state rules that could lead to an investment adviser’s registration being revoked. A registered investment adviser with a fiscal year end other than December must make sure to file its annual updating amendment within 90 days of the investment adviser firm’s fiscal year end.
Risk Alert Issued by SEC Identifies Significant Deficiencies Involving Failure of Investment Advisers to Comply with the Custody Rule
March 19, 2013
In a Risk Alert issued March 4, 2013 by the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”), it was revealed that “the SEC’s National Examination Program (“NEP”) has observed widespread and varied non-compliance with elements of the custody rule.” Rule 206(4)-2 under the Investment Advisers Act of 1940 (“Investment Advisers Act”), states that an investment adviser has custody of client assets if it or its related person holds, directly or indirectly, client funds or securities or has any authority to obtain possession of them. The Risk Alert indicated that approximately one-third (over 140) of the recent examinations reviewed by the SEC’s National Examination Program staff included custody related issues. The Risk Alert was issued by the SEC’s Office of Compliance Inspections and Examinations to encourage registered investment advisers to review their policies and procedures and examine their practices related to the deficiencies noted in the Risk Alert to ensure that investment advisers are aware of “…their responsibilities under the custody rule to protect client assets.”
Common Investment Advisor Exam Deficiencies
March 12, 2013
With the implementation last year of some of the new laws resulting from the required changes mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), investment advisors should make sure that they are ready for a regulatory examination. Many investment advisors had to change their registration status, most changes were from registration with the U.S. Securities and Exchange Commission (“SEC”) to registration with one or more state securities regulator, and some private fund managers that were previously exempt from investment advisor registration were required to become registered with the SEC. One anticipated outcome from all of these changes is that investment advisors will receive more frequent regulatory examinations. For some investment advisors this may mean that the investment advisor will be audited by a securities regulator for the first time.
In a release issued by the SEC on October 9, 2012, the U.S. Securities and Exchange Commission (“SEC”) announced “Presence Exams” for certain newly-registered investment advisers (investment advisers registered after July 21, 2011). The presence exams are to be conducted by SEC’s Office of Compliance Inspections and Examinations (“OCIE”) through the new National Exam Program (“NEP”) initiative. These “focused, risk-based examinations” will be conducted of investment advisers to private funds registered with the SEC. These Presence Exams will take place over a two-year period and have three primary phases:
Has Your Investment Adviser Updated its Written Policies and Procedures?
February 28, 2013
With the new year upon us, SEC registered investment advisers and most state registered investment advisers are reminded that in addition to adopting and implementing written policies and procedures, registered investment advisers are also required to review policies and procedures at least annually for the adequacy and effectiveness of the implementation of such policies and procedures. When conducting a review, investment advisers should consider items in your written policies and procedures that may need to be added, revised, or updated due to exam deficiencies, violations that have occurred in relation to the existing policies and procedures, changes in your registered investment adviser’s business model or regulatory changes. Examples may include changes in your investment adviser’s registration requirements or changes in policies concerning the use of social medial, political contributions or supervising branch office locations.
