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.

I often get asked what and how much information an investment adviser must gather from clients in order to ensure that it can satisfy its fiduciary duty of care to make suitable recommendations in the best interest of its clients.

By way of background, the duty of care requires an SEC-registered adviser to establish a reasonable understanding of the client’s objectives. How an adviser establishes this reasonable understanding can vary based on nature of the client, the scope of the adviser-client relationship, and the nature and complexity of the anticipated investment advice

For retail investors, the SEC has explained that this duty requires, at a minimum, that the adviser make a reasonable inquiry into the client’s financial situation, level of financial sophistication, investment experience, and financial goals. Yet, depending on the circumstances, more information may be required. For example, an adviser undertaking to formulate a comprehensive financial plan for a retail client would generally need to obtain a range of personal and financial information about the client, such as current income, investments, assets and debts, marital status, tax status, insurance policies, and financial goals.

Advisers should review the information they are collecting from clients to ensure that they are satisfying their fiduciary duty of care.

Read more here.

One of the most challenging and yet important things for investment advisory firms with investment adviser representatives (IARs) operating from multiple locations to do is to ensure that such IARs are being reasonably supervised to prevent their violation of securities laws.

The SEC is keenly focused on this topic, as demonstrated by an enforcement action announced last week where an investment adviser was fined $400,000 for failing to supervise an IAR that engaged in improper allocation of trades that resulted in preferred treatment for the IAR and his family members, at the expense of the IAR’s clients.

This risk is particularly acute for investment advisers who retain IARs to “tuck in” under the adviser’s umbrella, and yet such IARs essentially continue to run their own practices under such umbrella. This risk has also been exacerbated since the pandemic where advisers allow employees to work remotely for significant periods of time.

Advisory firms should not leave it to IARs to ensure their own compliance with the firm’s compliance policies and procedures. Advisers must ensure that there are appropriate touchpoints with such IARs to ensure that the IARs are complying with the firm’s policies and procedures.

Read more here.

Regulatory Updates from Cari Hopsfenperger at Foreside.

Topics include:

• SEC Announces Annual Examination Priorities for 2022
• Prepare for Your Next SEC Exam: Top Tips on Meeting to Meet Your Obligations under Regulation BI and the Fiduciary Standard
• FINRA Regulatory Notice 22-10 Addresses CCO Liability and Supervision
• Utah Becomes the Fourth State to Adopt Comprehensive Privacy Law

Plus Takeaways, Lessons Learned, Worth Reading, Watching and Hearing, and To-Do Checklists for the Month of May

May Regulatory Updates from Cari Hopsfenperger at Hardin Compliance Consulting LLC.

Topics include:

• Bringing Back BICE
• FINRA’s 2021 Entitlement User Account Certification Period Commences
• Gary Gensler Confirmed as New SEC Chair
• The Division of Examinations’ Review of ESG Investing
• SEC Issues Risk Alert to Broker-Dealers Identifying Known Deficiencies Related to AML Programs
• SEC Issues Risk Alert to Broker-Dealers Identifying Known Deficiencies Related to AML Programs
• FINRA Regulatory Notice 21-09: FINRA Adopts Rules to Address Brokers with a Significant History of Misconduct
• Regulatory Notice 21-07: FINRA Provides Guidance on Common Sales Charge Discounts and Waivers for Investment Company Products
• SEC Charges Auditor for Failing to Register with the PCAOB
• Lies of Omission are Still Lies – Individuals Censured, Barred Over Private Fund Disclosures

Read more here.