IAA Launches Web Resources for Promoting Diversity, Equity & Inclusion

Including a Step-by-Step Guide for Building a DEI Program at Your Firm

In an effort to promote meaningful progress toward achieving diversity, equity, and inclusion in our industry, the IAA has launched a special website section of resources to promote advancement of DEI programs at investment adviser firms.

Those resources include A Practical Guide to Building Diversity, Equity & Inclusion at Your Firm, an 11-step roadmap for creating or enhancing DEI programs that was developed by members of the IAA’s Diversity, Equity & Inclusion Working Group. The guide covers how to build a DEI team, defining goals, assessing progress, training and recruitment, and more.
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21 Advisers, Six BDs Fined for Form CRS Violations

The SEC has fined 21 investment advisers and six broker-dealers for failing to timely file and deliver their client or customer relationship summaries – known as Form CRS – to their retail investors.

After the new Standards of Conduct rulemaking package was adopted by the SEC in June 2019, the IAA created a special members-only website section with resources to assist member firms in understanding the rulemaking and meeting their new regulatory obligations. Its Form CRS pages include a Form CRS sample template, FAQs, a Form CRS Disclosure Checklist and links to related IAA webinars and videos.
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New Risk Alerts Focus on Wrap Fee Programs, Principal and Cross Trades

The SEC’s Division of Examinations has issued two risk alerts describing the staff’s observations resulting from initiatives on wrap fee programs (Wrap Fee Risk Alert) and principal and cross trades in fixed income securities (Cross Trading Risk Alert). The Risk Alerts contain a high level of detail and underscore the staff’s focus on specificity in disclosures and written policies and procedures. They provide an excellent roadmap for advisers to follow in reviewing their fiduciary obligations, compliance programs, and related disclosures.
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Adviser Industry Defies Pandemic, Sets New Growth Records

Reimagined Evolution Revolution Report Affirms Industry’s Resilience

Defying the challenges posed by the pandemic, the investment adviser industry continued to experience record-breaking growth in 2020 – with close to 14,000 SEC-registered investment advisers managing $110 trillion in assets for 60.8 million clients.

Those are among the topline findings of the Investment Adviser Industry Snapshot 2021, the reimagined Evolution Revolution report published for the past 20 years by the IAA and National Regulatory Services. The inaugural Investment Adviser Industry Snapshot 2021 includes more charts, more tables, and more analysis to make it easier to see and understand industry trends. For those who want to dive into the numbers, detailed data tables are available online in downloadable Excel files. State-by-state statistics on industry size, aggregate AUM, employment and number of clients are also available in our dedicated Industry Snapshot web section.
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Driscoll to Leave SEC; Kahl to Serve as Exam Division’s Acting Director

Peter Driscoll, who has led the SEC’s Division of Examinations and its predecessor Office of Compliance Inspections and Examinations for more than five years, will leave the agency in mid-August. The Division’s Deputy Director, Daniel Kahl, will serve as Acting Director after Driscoll’s departure.
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SEC’s Office of the Investor Advocate Announces Objectives for 2022

Fleming__Richard_4x6_LR.jpgThe SEC’s Office of the Investor Advocate, headed by Rick Fleming, has laid out its policy agenda for protecting and promoting the interests of retail investors in its annual report to Congress on objectives for fiscal year 2022, which starts October 1, 2021. ESG, digital assets, executive trading plans, registered fund disclosure, capital raising alternatives, improving equity market structure, broker conduct, and financial exploitation of senior investor are among Fleming’s top priorities.
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Use of Alternative Data by Investment Advisers

By Paul M. Miller and Lancelot A. King, Seward & Kissel LLP

Paul M. Miller and Lancelot A. King

The search for “alpha” by investment advisers has led to new ways to capture and utilize data in the investment decision-making process. Many advisers believe that incorporating alternative data, which is often characterized as a non-traditional source of investment research, into the investment decision-making process can provide a competitive advantage with respect to investment returns. Technological advancements, including electronic commerce, cellphone technology and satellite imagery, have spurred the development and collection of alternative data. Although the most common early users of alternative data were advisers using computer-driven or quantitative strategies, traditional asset managers are increasingly employing alternative data in their investment processes. 

This article explains the term “alternative data” and then describes its uses by advisers. It also discusses certain risks of using alternative data in the investment process, recent regulatory focus on such use and how advisers can address those risks in their compliance programs.
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Dual-Registrant Fined $8 Million for Insufficient Compliance Policies Related to Volatility-Linked ETP

The SEC has fined a dual-registrant $8 million after finding it did not adopt and implement compliance policies and procedures reasonably designed to prevent the unsuitable use of a volatility-linked-exchange-traded product (ETP) in discretionary advisory accounts. The SEC imposed the civil penalty despite the fact that the firm had voluntarily reviewed its use of volatility-linked ETPs and, based on its review, had removed the ETP from the advisory platform before the SEC contacted the firm.
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Massachusetts Adviser Pays Over $1.9 Million to Settle Charges of Inadequate Disclosure of Revenue Sharing in Connection with Cash Sweep Bank Accounts

In another sign of its focus on conflicts relating to cash sweep accounts, the SEC has fined a Massachusetts-based investment adviser for disclosure failures in connection with conflicts arising from a cash sweep-related revenue sharing arrangement. Specifically, the SEC found that the adviser failed to adequately disclose revenue sharing and related conflicts in connection with a bank deposit account used for clients’ uninvested cash.
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SEC Chair Names Additional Members of Policy Team

SEC Chair Gary Gensler has named five new members of his policy team, which is led by Policy Director Heather Slavkin Corzo. Sirimal Mukerjee, who previously served as a Branch Chief in the SEC’s Investment Adviser Regulation Office, has been named Investment Management Counsel, advising Chair Gensler on investment adviser and investment company matters.
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Adviser to Pay $97 Million in Connection with Rollover Conflicts

A New York-based firm dually registered as an investment adviser and broker-dealer has agreed to pay $97 million to settle charges by the SEC and the New York Attorney General’s office (NYAG) that it made inaccurate and misleading statements and failed adequately to disclose conflicts of interest in connection with thousands of rollover recommendations.
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Colorado Advisers Pay Over $10 Million to Settle Share Class Selection, Related Charges

Two affiliated Colorado-based investment advisers are paying more than $10 million to settle charges involving share class selection disclosure, revenue sharing, and best execution. The SEC settlement order requires them to pay disgorgement of over $7.2 million, pre-judgement interest of $1.3 million, and a fine of $1.5 million.
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SEC’s AMAC Tackles Diversity and ESG, Explores Retail Access to Private Investments, Advisers’ Use of Technology

In a lengthy open meeting on July 7, the SEC’s Asset Management Advisory Committee adopted subcommittee recommendations on diversity and inclusion (DEI) and ESG, considered an interim report from the Subcommittee on Private Investments, and heard presentations on technology-enabled personalization in the provision of investment advice.
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SEC Charges Private Funds Auditor for Causing Adviser to Violate Custody Rule

The SEC has instituted administrative proceedings against a Colorado-based SEC-registered adviser’s audit firm, audit engagement partner, and quality review partner for “widespread audit failures” in connection with 12 audits of six private funds whose assets were entirely or largely Level 3 assets.
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SEC COMMISSIONER PEIRCE KEYNOTE AT 2021 IAA COMPLIANCE CONFERENCE–In her keynote conversation with IAA President & CEO Karen Barr, SEC. Commissioner Hester Peirce discussed her concerns about recent agency initiatives involving climate change and ESG initiatives and other challenges facing the SEC.

MORE IAA VIDEOS – including sessions with SEC officials at our 2021 Compliance Conference and videos on Diversity, Equity & Inclusion – are on our VIDEOS page.