SEC Underscores Focus on Suitability of Placing Retail Clients in Complex Products with Enforcement Actions, Formal OCIE Statement

Signaling an intention to focus on suitability of adviser and broker-dealer recommendations to place retail clients in complex products, the SEC on November 13 brought and settled its first actions in connection with the Division of Enforcement’s Exchange-Traded Products Initiative. Under this initiative, the SEC is reviewing trading data to “uncover potential unsuitable sales.” OCIE issued a statement on November 16 on these enforcement matters in which it discusses the need for robust and effective policies and procedures.
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SEC Examination Staff Issues Risk Alert on Adviser Compliance Programs

The SEC’s examination staff in the Office of Compliance Inspections and Examinations (OCIE) has issued a Risk Alert providing an overview of notable compliance issues identified in a sample of deficiency letters from recent adviser exams. According to OCIE, deficiencies related to Compliance Rule 206(4)-7 have been among the most commonly cited. Notably, the Risk Alert places a lot of focus on the commitment of firms to compliance, in particular through the CCO, within firms. This article provides an overview of the deficiencies and weaknesses identified in the Risk Alert.
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SEC Amends Rules to Facilitate Electronic Submission of Filings

In a move strongly supported by the IAA, the SEC has taken two further actions acknowledging the widespread use of electronic signatures (e-signatures) and related technological developments, as well as the continuing need to support remote workforces. Earlier this year, the SEC staff had provided limited temporary relief regarding the use of e-signatures in response to the COVID-19 pandemic. However, the IAA and others in the industry have advocated in recent months for the SEC to provide additional permanent flexibility regarding the use of e-signatures in SEC filings.
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Investment Adviser Industry Set Records in 2019,
According to New Evolution Revolution Report

ev-rev-2020.jpgThe Investment Adviser industry continued to experience record-level growth through 2019, including in number of registered advisers and assets under management, according to the 2020 Evolution Revolution report.  “In every key metric – from industry size to assets under management to high quality jobs created – the investment adviser profession showed solid growth, underscoring our critical value to investors, to the economy, and to our capital markets,” said IAA President & CEO Karen Barr. “Investors continue to recognize the value of fiduciary advice, turning to investment advisers to help them achieve their goals and navigate their financial futures.”
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OCIE Issues Risk Alert on Multiple Branch Offices

The SEC’s Office of Compliance Inspections and Examinations (OCIE) has issued a Risk Alert regarding staff observations from examinations of investment advisers operating from multiple branch offices. The Risk Alert notes that the branch office model may pose certain risk factors that advisers should consider and outlines a range of deficiencies and common practices observed in examinations.
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New SEC Action Will Make It Easier for Issuers to Conduct Private Offerings 

In a 3-2 vote, the SEC has significantly amended its exempt offering rules to promote capital formation and expand investment opportunities while preserving or improving important investor protections. The amendments follow the SEC’s June 2019 concept release and March 2020 proposing release on the harmonization of private offering exemptions.
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In a Win for the IAA, SEC Declines to Adopt Sales Practice Rule for Advisers, Adopts New Approach to Derivatives Use by Registered Funds

After some trial and error, the SEC has adopted an “updated and more comprehensive” rule to govern the use of derivatives by registered funds and has declined to adopt a new sales practice rule for advisers that the IAA strongly opposed.
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Preparing to Leave the SEC, Clayton Reviews Accomplishments, Identifies Areas for Further Review

Three days after announcing his intent to conclude his tenure as SEC Chairman at the end of the year, Jay Clayton returned to the venue of his first speech as Chairman to review the SEC’s accomplishments over the last “three-plus years.” Explaining that the SEC “pursued a granular, yet flexible three-year plan,” Clayton highlighted the use of the government’s regulatory flexibility agenda to make the SEC’s goals clear and to “enhance transparency, promote cross-agency coordination and efficiency, and ensure both internal and public accountability.” He also discussed many unforeseen events during his tenure, including COVID-19.
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Building an Engaged Culture in a Remote World:
Three Steps to Take Today

Scheduled meetings around the conference table, casual conversations in the hallway, face-to-face heart-to-hearts, the occasional social event – many executives would say that these in-person connections are essential for building and maintaining a company’s culture.

Jim Ware and Keith Robinson, Focus Consulting Group

Of course, the pandemic has made these traditional tools unavailable, but the imperative of building employee engagement remains – even in a virtual environment.

At the IAA Leadership Week virtual conference in October, Jim Ware and Keith Robinson of Focus Consulting Group talked about the value of an engaged workforce and approaches to creating a high engagement culture. The interactive session was titled Company Culture – How to Keep Employees Happy and Motivated in a Virtual Environment.
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Managing an Advisory Business Through the Pandemic 

“‘Unexpected’ is the word that comes to mind,” is how one executive describes it.

“A very different experience than downturns in the past,” echoes another.

In short, the current pandemic has raised unprecedented challenges for the business of managing an investment advisory firm. 


At the IAA Leadership Week conference, Catherine Halberstadt of Osterweis Capital Management, Philip Hildebrandt of Segall Bryant & Hamill, Kelly Williams of Atlanta Capital Management and Jane Williams of Sand Hill Global Advisors, and Kelly Williams of Atlanta Capital Management discussed how their firms are addressing this unforeseen crisis. They spoke in a session titled Managing Through a Downturn – Strategic Thinking for a Cyclical Business, which was moderated by Charles Mahar of Tealwood Asset Management.
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The Regulatory Impact of Artificial Intelligence on Asset Managers

By Petal P. Walker, Special Counsel, WilmerHale 

Artificial intelligence (AI) is having a growing impact on the investment management industry. This article reviews various ways in which AI is impacting asset managers (firms) today, namely: (i) potential uses of AI for firms; (ii) potential regulatory implications of firms that use AI; and (iii) regulators’ and self-regulatory organizations’ (SROs) use of AI as a surveillance tool.
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DOL Adopts Registration Requirements for Pooled Plan Providers

The 2019 SECURE Act created a new type of multiple employer retirement plan called a pooled employer plan (PEP). The Act requires that each PEP be administered by a pooled plan provider (PPP), which will serve as a named fiduciary of the PEP. The SECURE Act requires PPPs to register with the DOL and the Department of the Treasury (Treasury) before they begin operations. PPPs may begin offering PEPs on January 1, 2021.
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Executive Order Prohibits U.S. Investors from Investing in Chinese Military Companies

Finding that the People’s Republic of China (PRC) is “exploiting United States capital” to develop and modernize its military and aiming to curtail development of the PRC’s “military-industrial complex,” President Trump has signed an executive order that prohibits U.S. persons from transactions in “publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities” of “Communist Chinese military companies.”
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IRS Updates Life Expectancy Tables Used to Determine Required Minimum Distributions

The IRS has adopted updates to life expectancy tables used to calculate required minimum distributions from retirement plans, IRAs, and annuities. The updates will apply to distribution calendar years that occur on or after January 1, 2022.
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SEC’s AMAC Recommends Switch to E-Delivery Default, More to Address Operational Issues Relating to COVID-19

The SEC’s Asset Management Advisory Committee (AMAC) has made preliminary recommendations to address COVID-19-related operational issues, including electronic delivery, remote work, e-authorization, and dematerialization. The AMAC was formed to provide the SEC with diverse perspectives on asset management and related advice and recommendations.
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CCO Outreach Highlights SEC Expectations of Advisers’ Compliance Programs and Due Diligence in Pandemic Conditions

Senior staff from the SEC’s Office of Compliance Inspections and Examinations (OCIE), the Division of Investment Management (IM) and Division of Enforcement’s Asset Management Unit and Cyber Units joined together on November 19 to present a virtual, half-day CCO outreach event focused on investment adviser and investment company compliance issues.  The four panels, which also included several industry participants, provided insight into the SEC’s regulatory agenda and examination and enforcement priorities.
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FinCEN, Federal Banking Agencies Clarify AML Due Diligence Expectations for Charities and Non-Profit Organizations

FinCEN and the federal banking agencies have issued a joint fact sheet to provide clarity to banks on due diligence requirements in connection with charities and non-profit organizations.
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DIVERSITY, EQUITY, & INCLUSION: AN INVESTMENT INDUSTRY IMPERATIVE–The historic lack of diversity in the investment industry is certainly no secret. Recent events in our country have added even more urgency to the issue and have inspired more candid dialogue on how best to rectify it. The work of these industry leaders shows their careers-long dedication to the values of diversity, equity, and inclusion – and they shared their experiences and thoughts about the path forward at the IAA’s 2020 Leadership Week virtual conference. Read the IAA Today’s coverage of their remarks.


MORE IAA VIDEOS – including SEC officials speaking at our 2020 Trading and Best Execution Summit and our 2020 Compliance Conference – are on our VIDEOS page.