US Compliance Blog

Protecting Clients from Cybercrime

s.e. gottlieb — Wed, 22 Feb 2012 14:59:33 +0000

Important tips for advisers on protecting their clients from cybercrime.

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20120205/REG/302059988

Registration Transition – SEC Backs Off Automatic De-registration

s.e. gottlieb — Fri, 17 Feb 2012 17:54:39 +0000

The SEC Final Rule Release that sets forth the increase in assets under management (AUM) threshold for SEC registration clearly states that the SEC is going to automatically deregister on June 28, 2012, any adviser that does not have the requisite AUM when filing their annual amendment. The SEC has backed off of this which will allow an SEC-registered adviser that reports less than the required $90 million in AUM on their annual amendment to stay SEC registered if, sometime before the June 28th deadline, they pop up over the $90 million mark. All the adviser would then need to do to stay SEC registered is file an other than annual amendment that reports the increased AUM.

Compliance Alert! Performance Fees

s.e. gottlieb — Fri, 17 Feb 2012 17:33:52 +0000

Dear Compliance Professional,

Recently the SEC tightened its rule on investment advisory performance fees by raising the net worth requirement for investors who pay performance fees and by excluding the value of the investor’s home from the net worth calculation.

This follows on the heels of the SEC excluding the value of an investor’s home from the net worth calculation when determining accredited investor status. Without making this change, there could have been instances when an investor would meet the (ostensibly) higher qualified client standard, but not the (ostensibly) less stringent accredited investor standard.

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Under the SEC’s rule, registered investment advisers may charge clients performance fees if the client’s net worth or assets under management by the adviser meet certain dollar thresholds. Investors who meet the net worth or asset threshold are deemed to be “qualified clients,” able to bear the risks associated with performance fee arrangements.

The revised rule will require “qualified clients” to have at least $1 million of assets under management with the adviser, up from $750,000, or a net worth of at least $2 million, up from $1.5 million. In addition, the revised rule will exclude the value of a client’s primary residence and certain property-related debts from the net worth calculation.

A new grandfather provision to the performance fee rule will permit registered investment advisers to continue to charge clients performance fees if the clients were considered “qualified clients” before the rule changes. In addition, the grandfather provision will permit newly registering investment advisers to continue charging performance fees to those clients they were already charging performance fees.

Finally, the revised rule provides that every five years, the SEC will issue an order making inflation adjustments to the dollar thresholds used to determine whether an individual or company is a qualified client, as required by the Dodd-Frank Act.

The rule amendments will take effect 90 days after publication in the Federal Register, but investment advisers may rely on the grandfather provisions before then.

Click here to view the Final Rule Release in its entirety:

Final Rule Release No. IA-3372

SEC Tightens Rules on Advisory Performance Fee Charges

s.e. gottlieb — Thu, 16 Feb 2012 23:50:36 +0000

The Securities and Exchange Commission today announced it is tightening its rule on investment advisory performance fees to raise the net worth requirement for investors who pay performance fees, by excluding the value of the investor’s home from the net worth calculation.

The revised rule will require “qualified clients” to have at least $1 million of assets under management with the adviser, up from $750,000, or a net worth of at least $2 million, up from $1 million. These rule changes conform the rule’s dollar thresholds to the levels set by a Commission order in July 2011. The Commission-ordered increase in the thresholds was required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition, the revised rule will exclude the value of a client’s primary residence and certain property-related debts from the net worth calculation; the change was not required by the Dodd-Frank Act, but is consistent with changes the Commission approved in December to net worth calculations for determining who is an “accredited investor” eligible to invest in certain unregistered securities offerings.

Finally, the revised rule provides that every five years, the Commission will issue an order making inflation adjustments to the dollar thresholds used to determine whether an individual or company is a qualified client, as required by the Dodd-Frank Act.

The rule amendments will take effect 90 days after publication in the Federal Register, but investment advisers may rely on the grandfather provisions before then.

http://www.sec.gov/rules/final/2012/ia-3372.pdf

Customize Those Manuals

s.e. gottlieb — Wed, 08 Feb 2012 00:43:06 +0000

At the SEC seminar last week, Rosalind Tyson, director of the SEC’s Los Angeles office, said that firms should design compliance programs tailored to their core business activities and then follow through on them.

“For heaven’s sake, don’t adopt policies that you’re not going to implement,” she said. “Make sure you know who should do what and that they’re doing it.”

9 Regulatory Issues That Could Affect Your Practice

s.e. gottlieb — Wed, 08 Feb 2012 00:25:21 +0000

Regulatory issues impacting advisers:

http://www.investmentnews.com/article/20120201/FREE/120129929

New Massachusetts Regulations

s.e. gottlieb — Mon, 06 Feb 2012 21:43:22 +0000

The Massachusetts Securities Division recently adopted new regulations related to investment advisers. The new regulations became effective February 3, 2012. The rules will generally not be enforced until August 3, 2012. The changes to the regulations did the following:

Discretion (950 CMR 12.205)(5): Changed the minimum financial requirements relating to an adviser with discretion over client assets.

Custody (950 CMR 12.205)(5): Removed the minimum financial requirements relating to an adviser with custody. Instead, an adviser with custody of client assets must comply with the safekeeping requirements outlined in Adviser’s Act Rule 206(4)-2.

Change in registration requirements (950 CMR 12.205(1)&(2)): The regulations change the definition of “institutional buyer” found in the regulations. This definition was traditionally used by advisers to pooled investment vehicles. As a result of changes, more investment advisers to pooled vehicles may be required to register or claim another applicable exemption or exclusion. The Division has also introduced a new conditional private fund exemption to exempt from registration certain advisers to one or more “private funds.”

Registration Transition Issue

s.e. gottlieb — Sat, 04 Feb 2012 12:10:44 +0000

Many states require applicant for state registration to complete an affidavit of “no prior activity.” The choices are typically, no, you have not conducted advisory activities in this state or yes, you have conducted advisory activities in this state. If the answer is yes, they require you to list all clients and fees charges, provide copies of client agreements, etc. What these affidavits are trying to determine is whether the applicant has been providing investment advisory services absent registration. The problem is, that for transitioning advisers who have been providing services in the state under a notice filing, there is no right way to answer the question on the affidavit. You cannot answer “no” because you would be attesting to something that was not true, but if you answer “yes” you may need to provide years of information about clients and fees. Very onerous and no easy resolution in sight.

Massachusetts Data Privacy Act

s.e. gottlieb — Sat, 04 Feb 2012 01:37:08 +0000

Please note by March 1, 2012, advisers must ensure their agreements with third-party service providers with which they share personal information meet Massachusetts Data Privacy Act (201 CMR 17) requirements.

http://www.mass.gov/ocabr/docs/idtheft/201cmr1700reg.pdf

New Challenges for Family Offices

s.e. gottlieb — Thu, 02 Feb 2012 13:38:26 +0000

The bombshell in the Dodd-Frank Act for family offices was the revocation of the “less-than-15-client exemption” for private investment advisers. That rule allowed single-family offices to avoid registration with the Securities and Exchange Commission under the Investment Advisers Act of 1940, and the disclosures and costs that come with it.

http://www.investmentnews.com/article/20120129/REG/301299981