More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
The House Financial Services Committee on Wednesday approved amended versions of both H.R. 1082, the Small Business Capital Access and Job Preservation Act, and H.R. 1070, the Small Company Capital Formation Act, on voice votes.
The former provides an exemption for private equity fund advisors from SEC registration requirements, and the latter raises the dollar limit on Regulation A exemptions, as well as precluding state authority to review Regulation A offerings.
Expressing concern over measures in both bills, David Massey (left), the North Carolina deputy securities administrator and president of the North American Securities Administration Association (NASAA), wrote to the Committee on June 15. On Tuesday, in his regular AdvisorOne blog post, he explained those concerns and pointed out that investors could be at risk from some of the language in the bills.
In his blog, Massey said that the lack of a definition in H.R. 1082 of “private equity fund” and obliging the SEC to define the term puts the cart before the horse in specifying exemptions for a term that has not yet been defined. He also expressed concern over the lack of clarity regarding reporting requirements for private equity fund advisors.
With regard to H.R. 1070, the language in Section 6, he said, “could seriously jeopardize the states’ ability to protect investors.”
Massachusetts Secretary of the Commonwealth William Galvinalso registered reservations over the language in H.R. 1070, sending his own letter that suggested modifications to continue authority of states to review offerings and to increase flexibility over whether or not to increase the dollar limit on Regulation A exemptions.
Massey said further, “While we appreciate Congressional efforts to reduce burdensome regulation on small business, NASAA continues to believe that these efforts will not be effective if they eliminate necessary disclosure requirements or otherwise limit the states’ ability to protect investors. While filing a registration statement and ’going public’ involves some expenses, much of this cost results from requirements that are necessary to ensure adequate disclosure of material information and provide sufficient investor protection. This system of disclosure ensures investor faith in the integrity of the public markets.”
He added, “While NASAA understands the desire to facilitate job creation, we respectfully point out that creating exemptions from important investor protection statutes may not be the best option.”