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.
The Securities and Exchange Commission today reported that 1,504 advisors to hedge funds and other private funds have registered with the agency since the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated such registration.
While some private fund advisors previously registered with the SEC voluntarily, mandatory registration has given the SEC its first comprehensive look at advisors to these types of funds. Including the 2,557 private fund advisors who had registered previously, a total of 4,061 advisors to one or more private funds are now registered with the SEC.
“Prior to the Dodd-Frank Act, regulators only saw a slice of the pie but didn’t know how big the pie even was,” said SEC Chairwoman Mary Schapiro, in a statement. “The law enables regulators to better protect investors by providing a more comprehensive view of who’s out there and what they’re doing.”
The SEC also issued a notice identifying 293 advisors who may no longer be eligible for registration with the SEC because they manage less than $100 million or have failed to comply with other SEC requirements. The SEC says it undertook this effort with extensive coordination and consultation with the state securities authorities.
According to the SEC, 11,002 investment advisors now are SEC-registered, with 37% advising hedge funds and other private funds. Assets under management at SEC-registered advisors has risen about $5.7 trillion, or 13%, even though the number of advisors fell about 15% as the Dodd-Frank Act required midsize advisors to move from federal to state oversight.
Norm Champ, director of the SEC’s Division of Investment Management, said in the same statement that “registration of private fund advisors requires these important market participants to comply with the Advisers Act and SEC rules and arms the SEC with the authority to examine their operations. Advisers are not just required to file a registration form, they also must take steps to ensure they are acting as fiduciaries, including monitoring their activities for conflicts of interest that can harm investors.”
Last week, the SEC’s National Examination Program launched an initiative to conduct focused, risk-based examinations of newly registered private fund advisors over the next two years.
In addition, the Dodd-Frank Act required midsize advisors to move from federal to state registration by June 28. To date, more than 2,300 midsize advisers—those managing less than $100 million of assets—have made the transition to state regulation.
A. Heath Abshure, Arkansas Securities Commissioner and president of the North American Securities Administrators Association (NASAA) said in the same statement that “the vast majority of switching advisors have made a smooth transition to state regulation and we are committed to working with those firms that continue to diligently pursue their state investment adviser registrations.”
Advisors identified in the notice have until Dec. 17 to withdraw their SEC registration, or inform the commission staff that they should remain eligible for registration with the SEC. After that date, the commission may issue an order cancelling the registration of advisors who have not filed an amendment, withdrawn from registration or requested a hearing.