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.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Japanese regulators widened their investigation of AIJ Invesment Advisors Co. to Hong Kong as they considered extending the suspension of AIJ’s activities. At the same time, a client of the advisory firm said as its own shares tumbled that it will seek to recover its losses.
Bloomberg reported Thursday that Japan’s Financial Services Agency is considering a continuance of its suspension of AIJ’s business for an additional 30 days as it reaches out to its colleagues in Hong Kong to assist in determining the whereabouts of some 185.3 billion yen ($2.3 billion) in pension assets, much of which are currently unaccounted for. It also seeks help in uncovering possible wrongdoing in the case.
The case has caused the FSA to launch its largest-ever probe of fund managers in Japan, and concern is running high over missing pension funds in the country where over 20% of the people are older than 65. AIJ President Kazuhiko Asakawa is scheduled to be questioned by parliament next week in the matter. AIJ has told regulators that its assets under management have fallen to around 24 billion yen, and it cannot account for the missing funds. Currently, Asakawa’s whereabouts are not known.
Katsuyuki Tokushima, head of pension research at NLI Research Institute in Tokyo, was quoted saying that the matter demonstrates the need for Japanese regulators “to consider hiring specialists who can trace the flow of investments that are channeled through overseas funds. It’s time consuming to uncover money flows through offshore locations like the Cayman Islands with fund administrators based in a different location.”
Meanwhile, Human Holdings Co., a school and healthcare company that has seen its stock price tumble 9.4% since it revealed that it was an AIJ client, is talking with its lawyer to see if it can claim damages on about 330 million yen ($4.1 million) that AIJ managed for it as of Dec. 31. Yusuke Kawashita, an executive officer of Human Holdings, was quoted saying, “We find it very regrettable that the reported performance was unrealistic and untrue. We are now in discussions on how to legally claim as much compensation as possible.”