DOL Proposes Dramatic Changes to Proxy Voting by ERISA Plan Fiduciaries

Would Prohibit Voting Proxies Unless Matter Has Economic Impact on Plan

Signaling a major change to how ERISA fiduciaries have understood their proxy voting responsibilities for decades, the DOL has proposed to amend its “Investment duties” regulation to address proxy voting and the use of proxy advisory firms under ERISA.

The DOL also plans to withdraw its previous guidance on proxy voting in Interpretive Bulletin 2016-01. The DOL issued that guidance in 2016 because it was concerned that then-existing guidance dissuaded fiduciaries from exercising their shareholder rights.
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New SEC Proxy Guidance for Advisers Effective September 3;
Proxy Advisory Firm Rules Take Effect on November 2

Updated September 3, 2020

New, supplemental SEC guidance regarding the proxy voting responsibilities of investment advisers took effect on September 3, when it was published in the Federal Register – adding to earlier proxy voting guidance the SEC adopted in August 2019. In both cases, the guidance was issued without notice and comment.

In a 3-1 vote in July, the SEC adopted the supplemental guidance as well as new rules for proxy advisory firms. In the IAA’s view, the SEC’s actions will make it more difficult for advisers to use the services of proxy advisory firms to help them fulfill their proxy voting responsibilities on behalf of their clients.
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SEC Broadens Accredited Investor and Qualified Institutional Buyer Definitions

In a first and welcome step to update access by a wider range of investors to the exempt markets, the SEC has, by a 3-2 vote, adopted amendments to the “accredited investor” definition in Regulation D and “qualified institutional buyer” (QIB) definition in Rule 144A, both under the Securities Act of 1933 governing private offerings. The final rule largely follows the SEC’s amendments proposed in December 2019.

The IAA supported the proposed amendments and made a few additional recommendations as well. We applaud the SEC for modernizing the accredited investor and QIB rules, particularly with respect to expanding access to the private markets for institutional investors, changes we have long called for. We highlight the key changes below.
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CFA Institute Publishes Consultation Paper on Disclosure Standards for ESG Investment Products

The CFA Institute (CFA) has published a consultation paper requesting comment on the scope, structure, and design of the global Environmental, Social, and Governance (ESG) Disclosure Standards for Investment Products (the Standard) that the CFA is developing. The CFA is also asking for volunteers to support the development of the Standard.
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IAA Urges DOL to Withdraw ESG Proposal

The IAA recently submitted a comment letter asking the DOL to withdraw its proposed amendments to its ERISA investment duties regulation regarding ESG investments. The proposed amendments would make it more difficult for ERISA plan fiduciaries to consider ESG factors as part of the investment process, and to offer ESG investments to plan participants.
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How to Improve Your Compliance Program

By Michelle L. Jacko, Esq., Managing Partner and CEO, Jacko Law Group

The purpose of compliance is simple – to prevent violations of securities rules and regulations so that investors can be protected and investment advisers can fulfill their ethical and fiduciary obligations to such investors. Accountability through supervision and a system of checks and balances is key to do just that.

In this article, we will be exploring ways to improve your Compliance Program regardless of work environment, be it onsite or remote. Through the adoption of risk mitigation techniques adopted in robust, customized policies and procedures, surveillance efforts and oversight, a Compliance Program can be enhanced to advance an organization’s business.
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The DOL’s ESG Proposal: Overview of Key Themes in Comment Letters

By George Michael Gerstein
Co-Chair, Fiduciary Governance, Stradley Ronon Stevens & Young, LLP

The U.S. Department of Labor (DOL)’s proposal, “Financial Factors in Selecting Plan Investments,” relates to environmental, social and governance (ESG) investing on behalf of employee benefit plans subject to ERISA, and investment funds that hold “plan assets” for purposes of ERISA. Considering strong global trends toward greater adoption of ESG strategies by institutional investors, it should come as little surprise that the proposal elicited thousands of comment letters, including a comment letter by the IAA. A review of a sample of 22 letters, the vast majority of which were from investment managers and trade associations, identified a number of popular and salient themes, which are detailed in this column.
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When It Comes to Reopening the Economy, HR is on the “Front Lines”

By Sharon Armstrong, SHRM-CP, PHR, CMF*
President, Trainers and Consultants Network

For months we have been celebrating the brave men and women on the "front lines" of this COVID-19 crisis. Doctors. Nurses. First responders. Even grocery store clerks. They've all earned our admiration, respect, and gratitude for the work they've done, often for very low pay and at great personal risk.

But as the nation now turns to the difficult task of re-opening the economy, getting people back to work, and ensuring the safety of America's labor force, I don't think it's an exaggeration to say that Human Resources professionals are now on the front lines of this battle. 
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New Jersey-Based Adviser Charged with Cherry-Picking

The SEC charged a New Jersey-based investment adviser and its president in connection with a “cherry-picking” scheme that the SEC alleges breached the adviser’s fiduciary duty to its advisory clients. The SEC alleges that the adviser disproportionately allocated profitable trades to “favored accounts” held by a new client while disproportionately allocating unprofitable trades to “disfavored accounts” held by long-term clients.
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Investment Adviser Fined $75,000 for Custody Rule Violations

The SEC settled an enforcement action with a New York City-based investment advisory firm for violations of the Advisers Act Custody Rule. The SEC found the investment adviser violated the Custody Rule when it failed on multiple occasions to timely distribute annual audited financial statements to investors in two different private funds that it managed.
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DOL Issues Interim Final Rule Regarding Lifetime Income Illustrations for Plan Participants

The Department of Labor (DOL) has issued an interim final rule with request for comments (IFR) regarding lifetime income illustrations, as required by the SECURE Act. The SECURE Act updated the contents of participant benefit statements to include disclosure on lifetime income streams, or the amount that a participant would receive each month based on the participant’s accrued benefits.
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DOL Proposes Registration Requirements for Pooled Plan Providers

The 2019 SECURE Act, which changed several retirement-related rules, also created a new type of multiple employer retirement plan called a pooled employer plan (PEP). It requires that each PEP be administered by a pooled plan provider (PPP), which would 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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IAA Comments on Proposal for Registration Exemption for Offshore Pools Operated by Non-U.S. Operators

The IAA and other buy-side trade associations filed a letter on August 11 on the CFTC’s proposed amendments to the registration exemption in CFTC Rule 3.10(c)(3) for offshore commodity pool operators (CPOs) of offshore pools. In our letter, we generally support the proposed amendments but recommend that the CFTC make several improvements that would provide more relief to advisers relying on the Rule 3.10 exemption, while continuing to align with the CFTC’s goals.
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Neil Simon
IAA Vice President for Government Relations
 IAA Presses Case for Advisory Fee Deductibility on Capitol Hill

The IAA continues its effort to persuade Congress to restore and expand the deduction for advisory fees in its “Phase 4” stimulus package in response to the widespread financial distress caused by the COVID-19 pandemic. We urge IAA members and other investment advisers to use our easy to use online Contact Congress tool to support our advocacy campaign.
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TRADING & BEST EXECUTION SUMMIT KEYNOTE WITH SEC COMMISSIONER HESTER PEIRCE – The impact of COVID-19 on the markets – and the SEC’s response – highlighted SEC Commissioner Hester Peirce’s remarks in her keynote conversation with IAA General Counsel Gail Bernstein. Peirce also addressed the SEC’s work on equity market structure and implications for the buyside – and expressed concerns about liquidity in the fixed income and credit markets during the pandemic.


MORE IAA VIDEOS – including SEC officials speaking at our 2020 Compliance Conference – are on our VIDEOS page.