NRS Fall 2020 Compliance Conference
Join NRS at our Fall 2020 Compliance Conference where industry experts will address how investment adviser and broker-dealer firms can successfully navigate the disruptive currents of regulatory change and adapt procedures to compliance programs.
NRS Spring 2019 Compliance Conference
Join NRS at our Spring 2019 Compliance Conference where industry experts will address how investment adviser and broker-dealer firms can successfully navigate the disruptive currents of regulatory change and adapt procedures to compliance programs.
Two Trading Compliance Challenges: Valuation and Trade Errors
Trade errors are inevitable. What distinguishes compliant firms is that they detect and identify them quickly, resolve them fairly and expeditiously, and minimize the likelihood of errors in the first place. The SEC will focus on trade errors and their resolution during its examinations of investment advisers. The Investment Advisers Act is silent on how to handle trade errors and is equally silent on the issue of who should bear the responsibility for losses resulting from such errors. In fact, the SEC staff has provided limited guidance on the issue. A review of enforcement proceedings, however, does shed light on the SEC’s position with respect to the correction of trade errors. This session will provide insight and guidance on what SEC examiners will expect to see and articulate best practices for addressing trade errors that are consistent with fiduciary standards.
Recent market events offer valuable lessons regarding the need for effective policies and controls addressing the timely and accurate valuation of securities and other investments. This session will emphasize the “best practices” that the SEC staff has identified during examinations and highlight those areas where enforcement actions have been brought.
Advisers Act Anti-Fraud Rules: Custody, Political Contributions, Solicitors and Proxy Voting Requirements
The SEC’s anti-fraud rules pursuant to Section 206 of the Investment Advisers Act of 1940 lay the regulatory foundation of the adviser’s relationship with its clients. Rules promulgated under Section 206 prohibit an adviser from defrauding, deceiving or manipulating any client or prospective client in its business practices.
In addition to the general anti-fraud prohibition of Section 206, Rules 206(4)-2, 206(4)-3, 206(4)-5 and 206(4)-6 under the Advisers Act regulate, respectively: custody or possession of client funds or securities; the payment of fees by advisers to third parties for client solicitations; political contributions by certain investment advisers, and proxy voting. Each of these rules and how they may be effectively integrated into an investment adviser’s compliance program and disclosures will be examined in detail during this session.
The SEC’s most recent revisions to the custody rule (Rule 206(4)-2) continue to generate many questions and concerns, and some confusion, among investment advisers. This course will explore the many facets of the rule, provide details regarding the definition of custody and examples of custody and delineate best practices for complying with this formidable and important rule. The course will also address the SEC’s guidance on custody via first- and third-party transfers of client assets.
Among the many regulatory changes the SEC has made, Rule 206(4)-5, known better as the “pay to play” rule, is designed to stop investment advisers from making campaign contributions with the hope of winning contracts to manage government investment accounts or public pension plan assets. Advisers that violate this rule may not be compensated for providing advisory services to local and state government clients for two years. This potentially draconian sanction should be sufficient cause for advisers to be completely conversant with the inner workings of the rule and how to protect the firm from violations, even if the firm is not presently subject to its provisions.
Understanding Fiduciary Duties and a Sweep of Anti-Fraud Provisions of the Advisers Act
In 1963, the United States Supreme Court held in SEC v. Capital Gains Research Bureau, Inc., that Section 206 of the Investment Advisers Act of 1940 imposes a fiduciary duty on investment advisers by operation of law. Section 206 of the Act (generally referred to as the “anti-fraud” provision) makes it unlawful for an investment adviser to engage in fraudulent, deceptive, or manipulative conduct. The general purpose of an investment adviser’s fiduciary duty is to eliminate conflicts of interest, and to prevent an adviser from taking unfair advantage of a client’s trust. The SEC has continuously made it clear subsequent to Capital Gains that the Act imposes on investment advisers an affirmative duty to their clients of utmost good faith, full and fair disclosure of all material facts, and an obligation to employ reasonable care to avoid misleading their clients. This course will examine the many permutations of an investment adviser’s fiduciary duty as it has evolved and provide examples of how it impacts advisory operations.
This course will also address some of the more expansive SEC rules promulgated pursuant to Section 206 that define the parameters of an adviser’s fiduciary duties. Foremost among them, Rule 206(4)-1, “the Advertising Rule” prohibits certain advertising practices by advisers. Another important component of Section 206 deals with principal and agency cross transactions. The course will unravel and clarify this arcane and technical anti-fraud provision.
Rule 206(4)-8 prohibits advisers to pooled investment vehicles (such as hedge funds, private equity funds, or venture capital funds) from making false or misleading statements to current or prospective investors in such funds. The Rule, though superficially similar to other anti-fraud rules, is quite broad in that it covers prospective or current investors, rather than clients of the adviser, and it only requires a showing of negligence. The course will examine the Rule’s background and text, articulate standards that the SEC and courts might use to approach the questions the Rule raises, and provide some basic guidelines to avoid violating the Rule.
Trading Compliance: Best Execution, Soft Dollars and Directed Brokerage
As a fiduciary, an investment adviser has many obligations to the client including developing, implementing and testing policies, procedures and disclosures to ensure proper trading practices. Compliance, legal and trading experts will offer an overview of the trading process and appropriate best practices, and provide “hands-on” compliance solutions for the following mission-critical areas: best execution, soft dollars, and directed brokerage.
This seminar will provide insight into the meaning of “best execution,” and will focus on how strong policies and procedures can help an investment adviser fulfill its fiduciary obligations. Attendees will also learn how to identify, mitigate and manage potential conflicts of interest in the trading process.
The seminar will also discuss the regulatory issues pertaining to “soft dollar” relationships. Section 28(e) of the Securities Exchange Act of 1934 provides a “safe harbor” for certain research and brokerage services received by an investment adviser in exchange for directing client commissions to a broker-dealer. The seminar will focus in particular on the definitions of eligible “research” and “brokerage services,” as defined by SEC interpretation.
SEC Examination and Enforcement Update for Investment Advisers
This course will speak to how the examination and enforcement culture has changed at the SEC, the new types of SEC exams, and how firms can prepare for them. Sample document request lists will be provided to review specific requested documents for different types of firms.
Our expert presenters will address:
- SEC’s Latest Examination and Enforcement Priorities
- Projected Increase in Frequency of Examinations
- Increasing the number of examiners
- The role of Big Data in the examination process
- Steps firms can take before, during and after an exam to improve exam outcomes
Examiners are skeptically probing in new areas, interviewing additional people, asking different questions, and have expanded the scope of requested documents and reports. Legal and industry experts will detail the examination process from the unexpected first notice to the final follow-up, and explain how strong internal controls that are put in place now can help your firm be prepared on short notice for these tougher examinations. Understand what the SEC is looking for and how to manage the examination once the SEC is onsite. Additional topics to be covered include the firm’s rights during the examination process, common problems the SEC encounters during examinations, and effective strategies for dealing with deficiencies found during an examination.
Two Persistent Compliance Challenges: Insider Trading and Advisory Contracts
The ongoing insider trading investigations and civil and criminal enforcement actions involving Wall Street professionals is a reminder of the importance of an investment adviser having effective policies and procedures to detect and prevent the misuse of material nonpublic information. This mission-critical topic will be a focal point of the course.
Section 204A requires investment advisers to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information by the firm or its associated persons. The course will include a discussion on the development of the law of insider trading, recent insider trading cases involving securities professionals, and elements of an effective insider trading policy and code of ethics.
The course will also cover the Advisers Act Section 205, which governs the SEC requirements for advisory contracts, including an opportunity to explore industry standards in this area.
Trading Practices, Portfolio Compliance and Related Enforcement Cases
As a fiduciary, an investment adviser has many obligations to the client including developing, implementing and testing policies, procedures and disclosures to ensure proper trading practices. Compliance, legal and trading experts will offer an overview of the trading process and appropriate best practices, and provide “hands-on” compliance solutions for the following mission-critical areas: fiduciary duty and client investment objectives/restrictions, aggregation, allocation, personal and proprietary trading, principal and agency cross transactions, side-by-side management, effective supervisory systems, and special considerations for hedge funds.
This session will focus on the critical risk area of portfolio compliance. Managing a client’s portfolio within relevant limitations and objectives is one of the most important fiduciary responsibilities of an investment adviser. Investment advisers are responsible for knowing their clients’ investment policies, guidelines and mandates, as well as any other applicable investment restrictions, and for managing their clients’ accounts strictly in accordance with such guidelines and restrictions. The SEC views consistency of portfolio management decisions with clients’ mandates as a primary internal control process.