IA brief: Recent tech survey highlights text message risk

A recently released survey has exposed a possible compliance gap for many firms that allow their representatives to communicate with clients via text message.

Text messages are books and records that are regulated by Rule 204-2 under the Investment Advisers Act of 1940, which requires the maintenance of multiple adviser records, with communication between clients being one of them.  (more…)

IA brief: Account takeovers are big cybersecurity risk for advisers

A recent cybersecurity roundtable hosted by the Securities and Exchange Commission should act as a call to action for investment advisers, as the threat of cyber attacks is high for all companies and increasing daily, say event panelists.

Investment advisers, whether small or midsize, are not immune from these attacks and now is a good time to recognize the firm’s risks, review available guidance, hone formal policies and procedures, and preparing for an imminent SEC exam module concerning cybersecurity. (more…)

IA brief: SEC opens door to social media ratings and client lists

The Securities and Exchange Commission’s guidance update this week on investment adviser use of social media and the applicability of the testimonial rule will help ease uncertainty over using of certain features of social media sites like Yelp, Foursquare, Facebook and LinkedIn.

The guidance, in the form of 9 questions and answers, primarily focused on the use of third-party review sites and whether it would trigger a testimonial violation. The guidance included specific examples opening the door to using Yelp, Foursquare or a similar site that offers a business review feature, granted certain conditions are achieved. (more…)

IA brief: Accuracy on assets reporting is crucial for upcoming amendment filing

The end of March is a crucial milestone of the annual compliance program for most registered investment advisers and exempt reporting advisers (ERA’s).

Every registered adviser and ERA must update their Forms ADV Part 1 and 2A within 90 days of its fiscal-year end, and that is March 31, 2014 for advisers whose fiscal year ended December 31. (more…)

IA brief: SEC examiners give first look at hedge fund exam findings

Last week, representatives of the Securities and Exchange Commission gave the first of many reports concerning its “presence exam” initiative for conducting initial regulatory exams of private advisers, and reported a lower rate of deficiencies compared with regular exams. The panel highlighted exam findings and staff observations concerning investment conflicts, marketing, valuation and custody.

The Dodd-Frank Act required approximately 1,500 private advisers to register with the SEC in 2012 – resulting in a current population of approximately 4,000 registered private advisers. (more…)

IA brief: SEC on pace to meet private-adviser auditing goal; how firms can prepare

IA brief: SEC on pace to meet private-adviser auditing goal; how firms can prepare

The Securities and Exchange Commission is on track to meet its goal for auditing private advisers that are newly-registered with the SEC under the Dodd-Frank Act , according to the agency’s 2014 examination priorities published this month.

The SEC has made it clear that this initiative remains a priority this year and if a firm has not already been audited, it should prepare by reviewing five focus areas. (more…)

IA brief: Simple compliance tasks amount for countless exam findings

A recent report offered by the regulators of investment advisers with less than $100 million in assets under management found 6,482 adviser deficiencies during a six month period of examinations.

The deficiencies were detected in 20 compliance areas with the top three deficiencies involving books and records, registration and contracts. A review of the specific deficiencies in each compliance area unveiled that many of them could be considered simple or administrative tasks (i.e. incomplete or inconsistent core documents) that should have been managed and detected by an effective compliance program. (more…)

IA brief: Practical considerations before opening the door to general solicitation

The Securities and Exchange Commission last week voted to lift the ban on general solicitation and advertising by private funds, as mandated by Congress in the Jumpstart Our Business Startups Act (JOBS Act). The new rule, 506(c), will now permit many hedge funds, private equity funds and venture capital funds to use general advertising and solicitation when attracting new investors.

The current regulatory regime only allows private funds to communicate with potential investors that have a pre-existing or tangible business relationship with the fund.  (more…)

IA brief: Advertising compliance principles for adviser Web sites

During an inspection, an examiner will inevitably ask the chief compliance officer of an advisory firm if they advertise and all too often, the examiner will receive a quick “no.” Although this may be true in the traditional sense of advertising, most firms do advertise with the use of a firm website and often don’t know it.

An adviser’s website is definitely a form of advertising and it’s usually a firm’s most public or visual form of it. Knowing some of the common compliance pitfalls when it comes to a firm website’s can save time and alleviate regulatory scrutiny. The listed pitfalls fall into four categories, they include: accuracy, disclosure, advertising rule considerations and documentation. (more…)

IA brief: Are you doing your part to prevent insider trading?

Reuters photo; Mike Segar

Historically, the act of trading on material, non-public information or insider trading was thought to be limited to corporate insiders or investment bankers, but that has not been the cases in recent years. The Securities and Exchange Commission reports that approximately 16 percent of the insider trading cases brought by the SEC in fiscal 2012 were against hedge funds and their advisers.

In a recent speech to an audience of compliance professionals, SEC Commissioner Luis Aguilar highlighted instances where investment advisers fail to do the right thing, with failing to prevent insider trading among them. He noted that insider trading – particularly relating to hedge fund and hedge fund advisers – continues to be an area of active enforcement by the SEC. (more…)