Fingerprints
Effective January 1, 2019, Louisiana Senate Bill 416 requires all investment adviser representative (“IAR”) applicants to submit fingerprints for a criminal background check to the Louisiana Commissioner of Securities. La. R.S. 51:703(D)(5). Investment adviser representatives registered before January 1, 2019 (unless they change advisers) and IAR’s already registered with FINRA do not need to submit fingerprints. Fingerprint cards can be obtained from local law enforcement offices and submitted along with a completed Louisiana State Police Bureau of Criminal Identification and Information Form, and a completed and notarized Authority to Obtain Information from Outside Sources form. The forms are available from the Commissioner of Securities office.
US Government Shutdown
Although the US government, and the SEC, is shutdown, advisers should continue to meet all statutory and regulatory deadlines as set forth in the SEC’s Operations Plan Under Government Shutdown (Dec. 2018). The IARD is still operating and accepting filings, although the SEC will not approve new or pending adviser registration applications.
ADV Amendments
Advisers must file their annual Form ADV Amendment by March 31, 2019. You should make sure that your IARD account is funded and password is current in advance of the deadline. There were no significant amendments to Form ADV this year (the SEC made a number of amendments in 2018 relating to separately managed accounts and standing letters of authority).
SEC 2019 Examination Priorities
The SEC’s Office of Compliance Inspections and Examinations (OCIE) published its “2019 Examination Priorities” on December 20, 2018. These priorities generally follow the SEC’s 2018 examination priorities. The OCIE declared that it will focus on six principal areas:
- Retail investors, including senior investors and those saving for retirement;
- Critical market infrastructure;
- Select areas and programs of FINRA and MSRB;
- Digital assets, i.e., digital currencies;
- Cybersecurity; and
- Anti-Money Laundering (AML) programs.
In the retail investor space, OCIE indicated that it will focus on:
Fees and Expenses – OCIE will continue to look for proper disclosure of investment costs to investors and that the fees charged are in accordance with the disclosures and the investment advisory agreement. Areas of particular interest include wrap fee programs, which provide for bundling of fees for advisory and brokerage services, and the appropriate use of particular mutual fund share classes.
Conflicts of Interest – Conflicts of interest continues to be an overriding concern for OCIE, which will look to ensure advisers adequately disclose those conflicts to investors. Of particular interest to OCIE are: (1) Utilization of affiliated service providers and products; (2) financial incentives to recommend securities-backed loans and lines of credit to investors; and (3) borrowing funds from clients.
Senior Investors and Retirement Accounts and Products – OCIE will review how broker-dealers interact with their clients and their ability to identify “financial exploitation” of senior and retirement investors by registered representatives. They will focus on compliance programs of investment advisers, appropriateness of investment recommendations provided to senior investors and the supervision of employees and representatives with respect to their interactions with senior investors and retirement savers.
Portfolio Management and Trading – OCIE will review investment advisers’ portfolio management processes, allocation of investment opportunities among clients and disclosure of critical information, such as risk assessment, to its clients. It will also examine the suitability of recommendations based on investment objectives and risk tolerance and style drift.
Never-Before or Not Recently-Examined Investment Advisers – OCIE will continue to focus on investment advisers that have never been examined, including newly registered investment advisers, or those that have substantially grown or changed business models.
Please feel free to contact me if you would like more information on any of the above.
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