Most Read Contributor in United States, August 2016
That is the question that the SEC has essentially posed for
registered investment advisers in a National Exam Program Risk
Alert. In doing so, the SEC has stated that it will be
"examining compliance oversight and controls of registered
investment advisers that have employed or employ individuals with a
history of disciplinary events . . . ."
The SEC will essentially be examining the investment advisers
business and compliance practices, particularly focused on higher
risk individuals. Does this mean that you should not hire or retain
someone who may have a disciplinary past?
Of course, not. Instead, this alert should be telling you that
such people, if you do decide to hire (or retain) them, should come
under some form of heightened supervision for a period of time, if
not forever. But be forewarned that the SEC is going to check up on
you by reviewing certain information, including the following:
Your compliance program , including
the practices surrounding the hiring and ongoing reporting
obligations of investment adviser representatives.
The firm's disclosures (i.e.,
Form ADV) that it makes to its customers to ensure that they are
The conflict of interest that the
The firm's marketing.
By reviewing these areas, the SEC believes that it can better
understand how firms are handling and representing advisers with a
past to their customers. If you decide to hire or retain such
advisers, you should focus on what you are saying to the public
about them through your words and actions before you are in the SEC
doghouse following an examination.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Recently, a group of prominent corporate executives, including Warren Buffett and Jamie Dimon, as well as investment managers and institutional investors, issued a set of "Commonsense Principles of Corporate Governance."
In a series of enforcement actions this week, the SEC made it clear that investment advisers need to substantiate the performance records of investment management firms they recommend to their clients.
The SEC recently proposed new Rule 206(4)-4 under the Investment Advisers Act of 1940, which would require registered investment advisers to adopt and implement business continuity and transition plans.
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