More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Social media use among registered investment advisors shot up over the past year, with 80% of RIAs stating they have adopted formal written policies concerning social networking, up from 64% in 2011 and 43% in 2010, according to the seventh annual Investment Management Compliance Testing Survey, released Tuesday.
The survey, conducted by the Investment Adviser Association (IAA), ACA Compliance Group and Old Mutual Asset Management, found social media to be the “hottest” compliance topic, with 54% of firms prohibiting the use of personal social media sites for business purposes, and 52% reporting that their social media testing has increased since 2010.
The second most commonly cited hot compliance topic by RIAs was insider trading, with 74% of firms testing to detect insider trading. More than 30% have increased their testing since last year.
The online survey was conducted from April 23 to May 18 and collected responses from 555 compliance professionals, representing a range of SEC-registered advisors.
The groups say that this year’s survey addressed compliance testing in the context of performance advertising; the Securities and Exchange Commission’s (SEC) pay-to-play rule, which restricts advisors’ and their employees’ ability to make political contributions to government officials to influence the selection of advisors to public pension funds and other government entities; special trading issues; and oversight of third-party service providers.
The survey also contained “trend update” questions about social media, whistleblowing, gifts and entertainment and insider trading.
Other key findings from the survey include:
- Since last year’s survey, compliance testing has increased the most in the areas of pay-to-play, advertising and marketing, personal trading and social media. Seventy-nine percent of firms indicate that they have not decreased compliance testing in any area.
- Fewer than half the respondents claim compliance with Global Investment Performance Standards (GIPS) in presenting performance results. Eighty-five percent of such firms engage a third-party verifier even though verification is not required. Furthermore, 31% of firms that do not claim GIPS compliance engage a third party to review their performance presentations. Overall, 28% of firms have increased their testing of performance advertising since last year.
- Pay-to-play policies are widespread, with only 15% of firms reporting that the rule does not apply to them. Seventy-six percent of firms note that they apply their policies to all employees (as compared with 68% in last year’s survey), and only 12% limit their policies solely to “covered associates” that must be covered under the pay-to-play rule. Seven percent of firm policies prohibit all political contributions, and 60% require pre-clearance of contributions.
- 82% of firms conduct best execution reviews of their securities trades. The most common forensic tests for best execution include review of trade errors, review of best execution policies and procedures, review of an approved broker-dealers list, comparisons to benchmarks, and review of soft dollars or commission-sharing arrangements.