Compliance, Standard of Care

DBA’s: Knowing when to hold them and fold them . . .or at least use them

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From Richard Chen:

Far too often, I’ve encountered situations where advisors and other business owners do not fully understand their use of a DBA or “doing business as” trade name, and this can potentially lead to very serious legal risks.

Many advisers utilize a DBA to facilitate their branding, whether they own their own firm or work as an investment adviser representative for another firm. Yet, many advisers fail to understand that a DBA is not a formal legal entity, such as a limited liability company, and the holder of a DBA does not enjoy the same rights as the owner of a formal legal entity (such as limited liability protection) if it is not used properly.

Read more here.

 

Compliance, Standard of Care

Tackle Operational and Client Risks Now for Smooth Selling Later

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While investment advisers looking to sell, merge, or acquire an advisory business typically focus most on pricing multiples, price adjustments, and earnouts, often overlook are key considerations that can easily sink a deal – namely, operational and compliance-related risks.

Once a term sheet is signed, selling advisers are often shocked to discover how much due diligence is involved when an acquiror asks pointed and very detailed questions about the operations, compliance program, and personnel of a firm. These questions are not only designed to determine if the transaction represents a good fit for the purchaser, but also whether the target firm’s operations and compliance program present regulatory or legal risks that are unacceptable to the purchaser.

Read more here.

Uncategorized

April Updates from Foreside. . .

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Regulatory Updates from Cari Hopsfenperger at Foreside.

Topics include:

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

Compliance, Enforcement, Standard of Care

Client Communications — The Importance of Documenting

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Investment advisers that manage assets on a non-discretionary basis i.e., executing a transaction only after a client accepts an investment recommendation) face regulatory and legal risks if communications with clients are not properly documented. Because such authority is contingent on client consent, the failure to obtain consent in writing could lead to claims by clients, down the road, that they never authorized an adviser to proceed with a transaction, particularly if the client is unhappy with the results of the investment. Regulators could also charge an adviser with exceeding the authority granted by a client to an adviser if consent is not properly documented.

 Read more here.

Compliance, Enforcement, Regulatory, Standard of Care

SEC Scrutinizing Advisers transitioning from BD model to IA model

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Advisers transitioning from wirehouses and independent broker-dealers must heed a warning from the SEC contained in its 2022 Examination Priorities that is pertinent to their transition.  The SEC noted that it will be scrutinizing whether advisors migrating from the broker-dealer model to the investment adviser model have evaluated their existing client accounts to determine whether it is in the client’s best interest to move from a brokerage account to an advisory account. As such, it will be important for transitioning advisors to evaluate the type and frequency  of services and investments currently offered and to be offered for each client and to document why, if applicable, it is advisable for the client to move from a brokerage account to an advisory account. Of course, client preferences should be solicited and documented in such analysis.  The failure to demonstrate that an adviser conducted such an evaluation could lead to allegations that the adviser breached its fiduciary duty of care to its clients.

Read more here.