Archive for September, 2017

#MSUM17 Themes Announced: identity, purpose and protection of independent wealth management firms.

Wednesday, September 27th, 2017

Read the press release here.

 

“Technology is the catalyst,” @HDelux to @Mike_Thrasher @wealth_mgmt on what fuels the move to independence.

Wednesday, September 27th, 2017

Phil Shaffer, a co-founder of Graystone Consulting, Morgan Stanley’s wealth management business that caters to institutions and wealthy individuals, has left the group to start his own independent advisory firm. “We have long said that technology is the catalyst for these departures,” said Brian Hamburger, president and CEO of MarketCounsel. “It’s what’s enabling them to leave and go toe to toe with the firms that they left.” MarketCounsel is an Englewood, N.J.-based firm that specializes in helping brokers transition to independence.

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SEC Statement on Cybersecurity Reveals EDGAR System Hacked

Thursday, September 21st, 2017

The SEC announced that its EDGAR system for storing documents filed by publicly traded companies was hacked last year.  The SEC further admitted that the information, which included filings that had not yet been made public, may have been used to trade on inside information.  The information about the hack was buried in an eight page “Statement on Cybersecurity” (the “Statement”) from Chairman Jay Clayton.  In the Statement, Mr. Clayton noted that “In August 2017, the Commission learned that an incident previously detected in 2016 may have provided the basis for illicit gain through trading.”  This potentially harmful breach was not disclosed by the Commission previously and warranted only five sentences in the Statement which ended with “Our investigation of this matter is ongoing, however, and we are coordinating with appropriate authorities.”

Cybersecurity is an important area for investment advisers and not just for regulatory purposes.  Advisers must protect their data, including client data that they have access to, for business and trust reasons.  It is worth noting, however, that the SEC has not said what they are going to remediate the breach, or for not disclosing the breach for a year or so after they became aware of it.  Yet that is the position that the Commission has taken with some broker-dealers and investment advisers.  We can only hope that the Commission will show the same compassion when looking at the technical compliance oversight of small investment advisers using good faith and best efforts in their compliance programs.

In the meantime, advisers should work with their information technology providers, either internal or third-party, to ensure that the firm is properly protecting data based upon the latest cybersecurity tools and guidance from within and outside the securities industry.  As always, members of MarketCounsel’s compliance management programs can find more information on cybersecurity guidance by going to this article on RIAglass and then searching numerous other cybersecurity articles.

Muddy disclosures continue to attract the wrong kind of attention

Tuesday, September 19th, 2017

Disclosure of conflicts of interest has long been an area of enforcement emphasis by the SEC.  Last year, Julie Riewe, Co-Chief of the Asset Management Unit within the Division of Enforcement stated:

In nearly every ongoing matter in the Asset Management Unit, we are examining, at least in part, whether the adviser in question has discharged its fiduciary obligation to identify its conflicts of interest and either (1) eliminate them, or (2) mitigate them and disclose their existence to boards or investors. Over and over again we see advisers failing properly to identify and then address their conflicts.[1]

Aggressive enforcement actions against investment advisers and their compliance officers for failing to fully disclose existing conflicts continues.  On May 26, 2017, a Connecticut Federal Court sided with the SEC where the regulator had alleged a firm and its CEO had failed to disclose to clients that moving assets into newly-created mutual funds created and managed by the defendants would “increase the clients’ total advisory fees paid to the adviser without changing the clients’ investment strategy.”  Significantly, the SEC brought this action even though the firm’s Form ADV disclosed that clients may pay mutual fund fees in addition to the usual management fee paid to the investment adviser for the new funds and that the adviser might receive additional compensation if the clients invested in the new funds.  See SEC v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, (No. 16-cv-00832–VLB).

Cases involved degrees of disclosure are among the most challenging to fight – the Court in Momentum made clear, an adviser should identify and disclose in its Form ADV all sources of compensation to ensure that any potential or actual conflicts of interest are fully disclosed to clients clearly and unambiguously in order to minimize litigation risk.  In other words, disclose the compensation issue, don’t assume that a vague or non-committal reference will be adequate.  Couching the disclosure in language that implies compensation “may” or “might” be paid will not be sufficient, and may expose the adviser and its management to significant penalties and fines.

The Hamburger Law Firm continues to represent advisers undergoing regulatory investigations for this and other types of potential compliance-related infractions, working to bring them to as efficient a conclusion as possible.

[1] https://www.sec.gov/news/speech/conflicts-everywhere-full-360-view.html

 

Muddy disclosures continue to attract the wrong kind of attention

Tuesday, September 19th, 2017

Disclosure of conflicts of interest has long been an area of enforcement emphasis by the SEC.  Last year, Julie Riewe, Co-Chief of the Asset Management Unit within the Division of Enforcement stated:

In nearly every ongoing matter in the Asset Management Unit, we are examining, at least in part, whether the adviser in question has discharged its fiduciary obligation to identify its conflicts of interest and either (1) eliminate them, or (2) mitigate them and disclose their existence to boards or investors. Over and over again we see advisers failing properly to identify and then address their conflicts.[1]

Aggressive enforcement actions against investment advisers and their compliance officers for failing to fully disclose existing conflicts continues.  On May 26, 2017, a Connecticut Federal Court sided with the SEC where the regulator had alleged a firm and its CEO had failed to disclose to clients that moving assets into newly-created mutual funds created and managed by the defendants would “increase the clients’ total advisory fees paid to the adviser without changing the clients’ investment strategy.”  Significantly, the SEC brought this action even though the firm’s Form ADV disclosed that clients may pay mutual fund fees in addition to the usual management fee paid to the investment adviser for the new funds and that the adviser might receive additional compensation if the clients invested in the new funds.  See SEC v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, (No. 16-cv-00832–VLB).

Cases involved degrees of disclosure are among the most challenging to fight – the Court in Momentum made clear, an adviser should identify and disclose in its Form ADV all sources of compensation to ensure that any potential or actual conflicts of interest are fully disclosed to clients clearly and unambiguously in order to minimize litigation risk.  In other words, disclose the compensation issue, don’t assume that a vague or non-committal reference will be adequate.  Couching the disclosure in language that implies compensation “may” or “might” be paid will not be sufficient, and may expose the adviser and its management to significant penalties and fines.

The Hamburger Law Firm continues to represent advisers undergoing regulatory investigations for this and other types of potential compliance-related infractions, working to bring them to as efficient a conclusion as possible.

[1] https://www.sec.gov/news/speech/conflicts-everywhere-full-360-view.html

 

Muddy disclosures continue to attract the wrong kind of attention

Tuesday, September 19th, 2017

Disclosure of conflicts of interest has long been an area of enforcement emphasis by the SEC.  Last year, Julie Riewe, Co-Chief of the Asset Management Unit within the Division of Enforcement stated:

In nearly every ongoing matter in the Asset Management Unit, we are examining, at least in part, whether the adviser in question has discharged its fiduciary obligation to identify its conflicts of interest and either (1) eliminate them, or (2) mitigate them and disclose their existence to boards or investors. Over and over again we see advisers failing properly to identify and then address their conflicts.[1]

Aggressive enforcement actions against investment advisers and their compliance officers for failing to fully disclose existing conflicts continues.  On May 26, 2017, a Connecticut Federal Court sided with the SEC where the regulator had alleged a firm and its CEO had failed to disclose to clients that moving assets into newly-created mutual funds created and managed by the defendants would “increase the clients’ total advisory fees paid to the adviser without changing the clients’ investment strategy.”  Significantly, the SEC brought this action even though the firm’s Form ADV disclosed that clients may pay mutual fund fees in addition to the usual management fee paid to the investment adviser for the new funds and that the adviser might receive additional compensation if the clients invested in the new funds.  See SEC v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, (No. 16-cv-00832–VLB).

Cases involved degrees of disclosure are among the most challenging to fight – the Court in Momentum made clear, an adviser should identify and disclose in its Form ADV all sources of compensation to ensure that any potential or actual conflicts of interest are fully disclosed to clients clearly and unambiguously in order to minimize litigation risk.  In other words, disclose the compensation issue, don’t assume that a vague or non-committal reference will be adequate.  Couching the disclosure in language that implies compensation “may” or “might” be paid will not be sufficient, and may expose the adviser and its management to significant penalties and fines.

The Hamburger Law Firm continues to represent advisers undergoing regulatory investigations for this and other types of potential compliance-related infractions, working to bring them to as efficient a conclusion as possible.

[1] https://www.sec.gov/news/speech/conflicts-everywhere-full-360-view.html

 

Muddy disclosures continue to attract the wrong kind of attention

Tuesday, September 19th, 2017

Disclosure of conflicts of interest has long been an area of enforcement emphasis by the SEC.  Last year, Julie Riewe, Co-Chief of the Asset Management Unit within the Division of Enforcement stated:

In nearly every ongoing matter in the Asset Management Unit, we are examining, at least in part, whether the adviser in question has discharged its fiduciary obligation to identify its conflicts of interest and either (1) eliminate them, or (2) mitigate them and disclose their existence to boards or investors. Over and over again we see advisers failing properly to identify and then address their conflicts.[1]

Aggressive enforcement actions against investment advisers and their compliance officers for failing to fully disclose existing conflicts continues.  On May 26, 2017, a Connecticut Federal Court sided with the SEC where the regulator had alleged a firm and its CEO had failed to disclose to clients that moving assets into newly-created mutual funds created and managed by the defendants would “increase the clients’ total advisory fees paid to the adviser without changing the clients’ investment strategy.”  Significantly, the SEC brought this action even though the firm’s Form ADV disclosed that clients may pay mutual fund fees in addition to the usual management fee paid to the investment adviser for the new funds and that the adviser might receive additional compensation if the clients invested in the new funds.  See SEC v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, (No. 16-cv-00832–VLB).

Cases involved degrees of disclosure are among the most challenging to fight – the Court in Momentum made clear, an adviser should identify and disclose in its Form ADV all sources of compensation to ensure that any potential or actual conflicts of interest are fully disclosed to clients clearly and unambiguously in order to minimize litigation risk.  In other words, disclose the compensation issue, don’t assume that a vague or non-committal reference will be adequate.  Couching the disclosure in language that implies compensation “may” or “might” be paid will not be sufficient, and may expose the adviser and its management to significant penalties and fines.

The Hamburger Law Firm continues to represent advisers undergoing regulatory investigations for this and other types of potential compliance-related infractions, working to bring them to as efficient a conclusion as possible.

[1] https://www.sec.gov/news/speech/conflicts-everywhere-full-360-view.html

 

“Investors have been very apathetic [about] the distinction between advisors and brokers and so long as that’s the case…” @HDelux @finplan

Monday, September 11th, 2017

Fee-only advisors often struggle to impress upon investors the fundamental differences between their fiduciary business model and that of, say, a commission-drive brokerage shop operating under the suitability standard.  “Investors have historically been very apathetic about really entrenching themselves with regards to the distinction between advisors and brokers, and so long as that’s the case, it’s going to be tough to imagine the SEC immediately changing tack given the issues that are backlogged on its docket today,” says Brian Hamburger, president and CEO of MarketCounsel, a business and regulatory consulting firm for entrepreneurial investment advisors.

Read more.

 

“The SEC may have permitted this practice to proliferate, but it was the private sector that continued to allow this,” @HDelux @wealth_mgmt

Monday, September 11th, 2017

Brian Hamburger, president and CEO of MarketCounsel, joined Former SEC Commissioner Aguilar on a webinar sponsored by TD Ameritrade Institutional. Aguilar called it an “embarrassment” that the SEC still hasn’t come out with a uniform fiduciary standard. He blamed politics and a bandwidth issue. Hamburger, however, believes it’s unfair to blame just the SEC.  “[The SEC] may have permitted this practice to proliferate, but it was the private sector that continued to allow this,” Hamburger said. “And at the end of the day, it also was investors. Investors have historically been very apathetic about really entrenching themselves with regards to the distinction between advisors and brokers. So long as that’s the case, it’s going to be tough to imagine the SEC immediately changing tack given the issues that are backlogged on its docket today.” MarketCounsel is an Englewood, N.J.-based firm specializing in business and regulatory consulting services for investment advisers.

Read more.