More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
In its quest to raise cash and get risky assets off its balance sheet, Credit Suisse Group found some willing buyers very close to home: its own employees.
Senior bankers who got illiquid loans and bonds as part of their pay participated in the Expanded Partner Asset Facility, which closed Dec. 31, and put a total of $450 million of their own funds into it.
Bloomberg reported that the new fund would use the leverage of borrowed money to buy more than $450 million of assets. The report cited someone familiar with the arrangement saying that Credit Suisse may act as the lender to the employee fund, and the reduction in so-called risk-weighted assets will reduce Credit Suisse’s capital requirements.
Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York, was quoted saying, “This is an advantage to the company, if priced correctly, in that it will reduce their capital charges and liquefy their balance sheet. The question is what goes into it, how is it being valued and are they using a third-party firm to value it? Because to do anything else is a transfer of value from the shareholders to the employees.”
A person familiar with the details was cited saying that the bank did not use a third party to value assets, which were transferred at market prices in accordance with the bank’s compliance controls.
Douglas Elliott, a former investment banker and now an economic studies fellow at the Brookings Institution in Washington, was quoted saying, “If the price at which you’re transferring the assets is based on market pricing, then you could just as easily take it to the market and do the same thing. If it’s not based on market pricing, then you have the risk you’re selling it too low.”
As part of their 2008 compensation, people familiar with the matter said that Credit Suisse had given approximately 2,000 managing directors and directors, its most senior ranks of employees, stakes in a $5 billion pool of illiquid assets. By mid-2010 the fund’s value had risen as much as 60%, although more recent data on the pool’s performance has not been made public.