All posts by Richard Chen

Effective Succession Planning For Advisers

February 11, 2022 Richard Chen Leave a comment

It’s imperative that advisers protect themselves and the clients they have worked so hard for through proper succession planning. Understandably, many advisers are not yet ready to sell their practice, but there are still numerous things advisers can do to protect their loved ones and their clients in the meantime.

One of those things is to enter into contingent buy-sell agreements whereby the adviser puts in place arrangements to sell the practice to another adviser in the event of the death, disability, or retirement of the adviser.

Read more here about additional considerations.

Compliance, Enforcement, Regulatory, Standard of Care

SEC Proposes New Cyber Rules For Advisers

February 11, 2022 Richard Chen Leave a comment

On February 9, 2022, the SEC proposed new rules that require investment advisers registered with or required to register with the SEC to adopt policies and procedures reasonably designed to address the cybersecurity risks they face as well as to conduct periodic assessments and annual reviews of their cybersecurity programs. The proposed rules would also require advisers to make and update public disclosures on Form ADV regarding cybersecurity risks and significant cybersecurity incidents and to make additional confidential disclosures to the SEC regarding cybersecurity incidents experienced by the firm or any funds they manage within 48 hours of a cybersecurity incident.

The rule proposal, if adopted, will invariably require advisers to devote significantly more time and resources to cybersecurity risk management.

SEC’s Private Fund Risk Alert — Additional Deficiencies Found

February 11, 2022 Richard Chen Leave a comment

Signaling its increased scrutiny of private fund managers (including hedge, private equity, and venture capital fund managers), the SEC yesterday supplemented its June 23, 2020 Private Fund Risk Alert to identify additional deficiencies identified in recent examinations of such advisers which included the following:

Deficiencies in following disclosures in fund offering and other materials
Deficiencies pertaining to performance presentations and marketing
Deficiencies related to due diligence
Deficiencies pertaining to misleading hedge clauses in documents that purported to waive or limit the Advisers Act fiduciary duty except for certain exceptions, such as a non-appealable judicial finding of gross negligence, willful misconduct, or fraud which are currently found in almost all fund offering documents.

Hedge Clauses — Advisers Beware

February 11, 2022 Richard Chen Leave a comment

So cautions Richard Chen:

The SEC is taking aim at investment advisory contracts between the adviser and its clients, and many advisers may need to amend those contracts in light of the staff’s recent guidance where it takes the position that certain contract provisions designed to protect the adviser from liability constitute so-called “hedge clauses” that raise confusion as to whether the client is waiving its right to take action against an adviser provided under federal or state laws. The types of provisions can vary, but the SEC is particularly focused on claims where an adviser disclaims liability for its acts or omissions other than those that result from its gross negligence, willful misconduct, or bad faith.