More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
SEC Commissioner Daniel Gallagher told chief compliance officers on Thursday that he sees cases where the securities regulator can grant exemptive relief for private fund advisors that must register with the agency as mandated by Dodd-Frank.
“I believe that there will be cases, moving forward, when an individual advisor or a particular class of advisors ought to be granted some measure of relief from the full panoply or requirements that come with registration under the Advisers Act,” Gallagher told attendees during the Investment Adviser Association’s annual compliance conference in Arlington, Va., just outside Washington.
Gallagher said that he’s “alarmed at the looming costs of registration” for private fund advisors, which must register with the commission by March 30. “The rationale of having them register is questionable,” he said, and expansion of registration for private fund advisors “will not protect investors.”
The SEC promulgated the rule requiring private fund advisors to register with the commission last June.
Gallagher went on to say that “As both Congress and the Supreme Court have recognized, not all investors need the fullest protections of the securities laws. Indeed, in many instances, investors with a significant degree of sophistication would prefer to trade away some of the requirements of the securities laws in exchange for greater freedom in investment selection.”
To regulate as if all investors are alike, Gallagher said, “may lead the Commission to impose massive costs on the system without a purpose that is consistent with the Commission’s mission and its decades of experience.”
Meanwhile, a bi-partisan group of congressmen told SEC Chairman Mary Schapiro in a Jan. 30 letter that the commission should delay the March 30 registration deadline and to exempt advisors to private funds that are not highly leveraged at the fund level from the new requirements. "The Commission's registration requirements do not sufficiently consider the nature of private rquity funds and the significant differences between private equity and other types of private investment pools," the congressmen told Schapiro.
The lawmakers said that "subjecting private equity firms to excessive regulation risks hindering our nation's economic growth." They also noted H.R. 1082, the Small Business Capital Access and Preservation Act, which exempts advisors to private equity funds that have not borrowed and that do not have outstanding a principal amount in excess of twice their funded capital requirement.
But Robert Plaze, deputy director of the SEC’s Division of Investment Management, said at the conference the same day that he does “not anticipate broad exemptive relief at this point.” Any changes, he said, “would have to be done in Congress.”
Plaze said that the filing deadline for private fund and hedge fund advisors was on Feb. 14. So far, 1,250 private funds have registered, 300 more than anticipated. Plaze also said that the SEC has hired more staff with hedge fund expertise.