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.

Standard of Care, Compliance

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.

Enforcement appears as messages disappear part II: Steep penalties imposed in personal messaging cases

October 4, 2022 Clifford E. Kirsch Leave a comment

Sixteen firms settled with the Securities and Exchange Commission and Commodity Futures Trading Commission for failing to maintain and preserve business-related communications.

Total civil penalties for these settlements and similar actions brought in December 2021 exceed $2 billion.
The settlements stem from a risk-based investigation into whether broker-dealers, swap dealers, and other registrants are retaining business-related communications made on personal devices.
Companies can take certain proactive measures now to ensure their record retention policies and controls sufficiently mitigate risk stemming from employee use of text messaging applications, including third-party platforms such as WhatsApp, on their personal devices.

Read more here.

Standard of Care, Compliance

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.

Read more here.