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.
- 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.
Initial public offerings of stock have finally started to show signs of thawing after last month’s Facebook fiasco froze the U.S. IPO market, but bipartisan groups in Congress say the IPO process is in dire need of reform to protect retail investors from the sophisticated market’s gyrations.
Four companies have announced terms and a fifth has revived a deal, Renaissance Capital reported Thursday, saying that such “icebreaker” IPOs have historically seen uniformly excellent returns. The first IPOs to price after a period of inactivity tend to be attractively priced growth companies, according to the Greenwich, Conn., global IPO investment advisor’s research.
“From a mini-surgical camera maker to a fertilizer ingredient supplier, the companies were notably diverse, spanning eight different sectors and a wide range of deal sizes,” Renaissance reported. “Growth rates were generally high though, and most were profitable and of reasonable scale. The forward P/E ratios ranged from 6x to 27x, but a majority offered about a 20% discount to their peer groups and most priced at less than 15x.”
However, U.S. Rep. Darrell Issa, the California Republican who has made a name for himself by accusing Attorney General Eric Holder Jr. of obstructing an investigation into the Fast and Furious gun operation, has written a letter to Securities and Exchange Commission Chairwoman Mary Schapiro demanding a rules review of the IPO process.
“The Facebook IPO taught us that, at a minimum, the IPO process suffers substantial flaws,” Issa wrote in his 15-page June 19 letter to Schapiro. “In fact, it appears the entire IPO regulatory framework, based on an outdated Securities Act of 1933, fails to provide a market-based solution to IPO pricing.”
On the Democrats’ side of the aisle, Sen. Jack Reed, the chairman of a Senate Banking securities subpanel, on Thursday held a hearing to examine whether the IPO process works for ordinary investors.
“The number of individuals participating in our capital markets has grown substantially, especially for investors trying to save for retirement,” Reed said after calling the hearing to order. “A dysfunctional IPO market can harm our economy.”
Also on Thursday, Renaissance’s Analyst IPO Blog called for modernization of the IPO ecosystem.
“Thanks to the Facebook IPO fiasco, the parochial practices of the U.S. IPO market are now obvious to all. It's ironic that a leading technology company built on high-speed servers and open social interaction would allow its public debut to be damaged by the outdated mechanisms of our IPO market, including NASDAQ's trading snafus and selective information disclosure,” the statement said in part.
The five companies that plan to start bidding will end the eighth-longest stretch between IPO pricings since 2000, excluding the seasonally slow mid-December to mid-January period, according to a Renaissance statement.
“After 31 days of post-Facebook silence, the US IPO market suddenly awoke this week,” Renaissance said.
Read Facebook Frenzy Is About Separating Fools From Their Money: News Analysis at AdvisorOne.