All posts by Richard Chen

Compliance, Regulatory, Standard of Care

Marketing Rule and “Promoter” Agreements — What Advisers Should Consider

October 24, 2022 Richard Chen Leave a comment

Advisers paying third parties for client referrals (“promoters”) must determine whether they will need agreements with such promoters in order to comply with the new Marketing Rule and to ensure that any such agreements allow them to ensure compliance with the Marketing Rule’s disclosure, oversight and disqualification provisions pertaining to the use of paid testimonials and endorsements.

Among other things, advisers will want to consider the following with respect to agreements with promoters:

Restrictions on the materials the promoter may use to promote the adviser’s services
Processes for pre-approval of any materials to be used by the promote to promote the adviser’s services
The Imposition of disclosure requirements for any marketing materials to be used by the promoter to ensure compliance with the Marketing Rule
The right of the adviser to conduct ongoing due diligence on the promoter’s compliance with the Marketing Rule including the right to inspect books and records
Inclusion of representations and warranties to be made by the promoter to ensure that it and its personnel are not disqualified from referring clients to the adviser

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Marketing Rule Compliance: “To Do’s” by November 4th

October 18, 2022 Richard Chen Leave a comment

Here is a checklist of certain “to do” items for SEC-registered advisers to consider to come into compliance with the Marketing Rule on November 4, 2022:

Review any existing marketing materials (including any websites and social media posts) to be used in the future (including those for any private funds) to determine whether they comply with the requirements under the new Marketing Rule
Determine if there are factual statements in any marketing materials that have not been substantiated by references or backup documentation
Determine if all performance results include results presented “net of fees” and determine if net performance results are calculated properly

The complete list of recommended “To Do’s” can be found here.

Compliance, Standard of Care

Fiduciary Obligations for Legacies

October 11, 2022 Richard Chen Leave a comment

Many advisers incorrectly believe they automatically have no fiduciary obligations with respect to legacy investments that clients bring into the advisory relationship.

However, in the absence of an explicit understanding to the contrary, this is not true. By default, advisers still owe a fiduciary duty of care with respect to such investments (i.e., to conduct a reasonable investigation into such investments and to determine if they are suitable for the client) as they do for other investments they proactively recommend.

Advisers that do not wish to undertake the responsibility of conducting due diligence on and to make suitability determinations with respect to such legacy investments must take steps to clarify these points in their advisory agreements with clients.

Successfully Navigating Client Complaints

October 3, 2022 Richard Chen Leave a comment

With any significant downturn in the markets, client complaints invariably increase.

The difference between successfully navigating a client complaint (and avoiding litigation) often turns on whether an adviser has an effective gameplan for handling complaints and how that gameplan is executed.

An effective gameplan should address the following:

How the adviser initially responds to the complaint;
When and how the adviser communicates with the client;
How the adviser approaches investigating the complaint; and
How the adviser resolves the complaint.

SEC New Marketing Rule

September 19, 2022 Richard Chen Leave a comment

In a Risk Alert published today on the new Marketing Rule, the SEC announced that there will be a number of upcoming specific national initiatives designed to verify adviser compliance with the new Rule, which requires full compliance by November 4, 2022.

The SEC cited a number of areas which will be reviewed including:

Verification that advisers have adopted policies and procedures reasonably designed to prevent violations of the Marketing Rule, including objective and testable means reasonably designed to prevent violations of the rule including conducting pre-reviews and approvals of advertisements, sampling advertisements utilized based on risk, and pre-approving advertising templates
Testing whether advisers have a reasonable basis for any statements of material facts in any advertisements
Verification that advisers are complying with performance reporting requirements including the proper use of net performance results, appropriate performance measurement periods, related performance, extracted performance, hypothetical performance, and predecessor performance
Verification that advisers are maintaining the books and records required by the new Marketing Rule.