Category Archives: Standard of Care

Successfully Navigating Client Complaints

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.

Read more here.

SEC New Marketing Rule

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.

Read more here. 

Conflicts of Interest — Is Disclosure Enough?

Don’t assume you can disclose away all conflicts of interest – that’s the latest warning and reminder from the SEC to investment advisers and broker-dealers from a recently-published staff bulletin.

As a reminder, an SEC-registered adviser owes clients a fiduciary duty of loyalty to eliminate a conflict of interest or, at a minimum, make full and fair disclosure of the conflict of interest such that a client can provide informed consent to the conflict.

In the bulletin, the staff pointed out several circumstances where conflicts must be eliminated and not merely disclosed. For example, the staff believes that eliminating a conflict is appropriate where the conflict is of a nature and extent that it would be difficult for the adviser to provide full and fair disclosure, and the investment adviser cannot mitigate the conflict such that full and fair disclosure and informed consent are possible.

Read more here.

SEC/CFTC Jointly Proposed Rule Regarding Form PF and Digital Assets

Signaling its increasing scrutiny on investment advisers managing crypto assets, the SEC and CFTC recently jointly proposed a rule that would require private fund managers who are required to file Form PF to report information on digital asset investments held by their private funds.

The release defines a “digital asset” as an asset that is issued or transferred using distributed ledger or blockchain technology including, but not limited to, virtual currencies, coins, and tokens.

Among other things, reporting managers would need to provide a good faith estimate of the percentage of the reporting fund’s net asset value invested in digital assets as well as the dollar value of long and short positions in digital assets.

Read more here.

SEC’s IM Division announces it will allow Oct. 26, 2017 SIFMA no-action letter to expire on July 3, 2023

From Morgan Lewis’ LawFlash, the SEC’s division of Investment Management’s announcement that it would allow its October 26, 2017 no-action letter to SIFMA to expire on July 23, 2023 “pulls the rug out from under ‘Hard Dollar’ research arrangements,” and raises questions about the possible investment adviser status of broker-dealers that, after that date, accept cash or “hard dollar” payments for research from investment managers subject to the EU Markets in Financial Instruments Directive II.

Read more here.