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Your professionally curated research and reference resource fully integrating treatise and how-to guidance with underlying laws, rules, interpretations, and hundreds of sample documents.

New Textbook Available!

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We're pleased to announce that Karl is co-author of the first new textbook about the '40 Acts in over 30 years! Investment Management Regulation: An Introduction to Principles and Practices. Available now at cap-press.com. Just click on the "View More" headline to this blurb above to be taken to the publisher's site. As Members you are entitled to a 10% discount and free shipping at the Carolina Academic Press's site.

Adviser Regulatory & Compliance News

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FAQs Regarding Disclosure of Certain Financial Conflicts Related to Investment Adviser Compensation

October 28, 2019

In mid-October the SEC's Div. of Investment Management posted a series of FAQs designed to address potential conflicts of interest arising from certain types of adviser compensation. Noting that "Compensation that an investment adviser, its affiliates or its associated persons receives in connection with the investments it recommends and related services it provides can result in the investment adviser having interests that conflict with those of its clients. Many investment advisers appear to have recognized these conflicts and responded through practices designed to address them, including through elimination, disclosure or a combination of disclosure and mitigation. However, SEC examinations staff have observed and enforcement cases have illustrated that, in some instances, investment advisers have not appropriately addressed these conflicts of interest." Noting that Rule 12b-1 payments and revenue sharing arrangements are among the more obvious potential conflict situations, the SEC also noted potential conflicts can arise from "an investment adviser’s direct or indirect receipt of service fees from its clearing broker-dealer, marketing-support payments from a mutual fund’s investment adviser, transaction fees, or receipt of payments from a mutual fund’s investment adviser to help defray the costs of educating and training its personnel regarding certain investment products." The FAQs then proceed to expand on these points. Please click on the heading to this summary to access the full SEC version of the FAQs.

Please Give Folks Accurate Performance Info, Says the SEC!

October 19, 2019

In early October 2019, the SEC published an Accounting and Disclosure Information notice, "ADI 2019-09 - Performance and Fee Issues." The notice summarizes recent findings by the DRAO, the Division of Investment Management’s Disclosure Review and Accounting Office, regarding general shortcomings in filings by advisers and funds with respect to performance and fee data. As noted by the SEC staff, "Key Takeaway: Verify the accuracy of your performance and fee disclosures prior to filing them with the Commission and providing them to investors." Please click the headline to this blurb to access the ADI.

Attorneys—Be Truthful About Clients’ Securities Offerings

September 26, 2019

File this one under: "Warning to Securities Lawyers!" In mid-September 2019, the SEC brought an action against a South Florida attorney for aiding and abetting a client's fraudulent offering and sale of securities. As part of its complaint, the SEC alleged that the attorney "knowingly falsified or omitted important facts and offered the opinion that [client's] notes likely were not securities." In addition, "According to the complaint, Atlas received a percentage of the commissions generated on the sale of 1 Global's notes, which totaled more than $600,000." So, not only did the attorney lie, he also got kick-backs from the fraudulent sale of $322 million worth of the notes. Please be sure to click the headline to this summary to access the SEC Litigation Release and its related complaint.

Caveat Emptor:  SEC’s Best Interest Fiduciary Initiatives Adopted [Updated]

September 20, 2019

It’s a matter of caveat emptor: buyer beware. After many months of consideration, investor testing/surveying, and circa 6,000 comment letters, the SEC acted in early June 2019 to enhance the protection of retail investors while not materially disrupting the existing investment industry business models and the ability of investors to choose among different types of providers such as advisers and brokers. The key measures adopted are as follows: • New Regulation BI (as in "Best Interest")…generally referred to as “Reg. BI;” • New Form CRS (i.e., "Customer Relationship Summary"); • Interpretive advice re: an investment adviser's fiduciary duties; and • An interpretation of the "solely incidental" aspect of the broker-dealer exclusion from the definition of an "investment adviser" under the Advisers Act. The new Reg. BI will go into effect in about a year (following formal publication of the new regulation). Many think that this will bring an end to the long journey and discussion regarding fiduciary duties of advisers and brokers. In reality, it really is a matter of caveat emptor both for the industry and retail investors. Much will be written in the coming months about the likely impact of the new measures. As a practical matter, advisers and brokers must review their policies and procedures (such as disclosure and customer on-boarding processes) to assure compliance in the future. PLEASE BE SURE TO CLICK THE HEADLINE TO THIS BLURB TO ACCESS AN EXTENSIVE RESOURCE COLLECTION ON THE NEW INITIATIVES. WE ARE ADDING TO THE REFERENCE LIST AS WE FIND MATERIALS.

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