More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
The Securities and Exchange Commission’s enforcement division is putting a heightened focus on fund boards’ approval of advisor fees, Andrew Ceresney, co-director of the division, said Wednesday.
Speaking on a panel at the Securities Enforcement Forum in Washington, Ceresney said that while the enforcement division has been focused on investment advisor fraud and market structure cases, other areas that the division will home in on include accounting fraud and financial reporting.
When asked by reporters after his remarks to provide more insight into the SEC’s focus on fund boards, Ceresney declined to comment further but cited the SEC’s action in May in which the gatekeepers of a pair of Northern Lights mutual fund trusts were charged with causing untrue or misleading disclosures about the factors they considered when approving or renewing investment advisory contracts on behalf of shareholders.
Stanley Sporkin, a former federal judge and SEC enforcement director, told ThinkAdvisor that the Northern Lights case highlights the importance of fund directors' role as "gatekeepers" in ensuring the shareholders are not getting socked with hefty fees, like 12b-1 fees or excessive advisory fees. "The gatekeeper includes those people who the law looks to as protecting the interests of investors, and one group are mutual fund directors, particularly directors of investment companies, where the investors' interests are vulnerable."
The SEC states in the Northern Lights action that the SEC Enforcement Division’s asset management unit has been taking a wide look into the investment advisory contract renewal process and fee arrangements in the fund industry.
Ceresney also said that the division will retain the five specialized units that were created by his predecessor, Robert Khuzami. The specialized units were “a wonderful innovation that has worked extremely well,” said Ceresney, who was appointed co-director along with George Canellos by SEC Chairwoman Mary Jo White in April.
While the division will retain the units — which include asset management, market abuse, foreign corrupt practices, municipal securities and public pensions, and structured products — they will likely be “retooled.” For instance, Ceresney said that the structured products unit was recently renamed the complex financial products unit, as “structured products are less prominent” now.
Steve Crimmins, a partner with K&L Gates in Washington, who served for eight years as the SEC’s Deputy Chief Litigation Counsel, said on a separate panel at the event that the asset management unit has been "aggressive" in bringing investment management cases--146 such cases in 2011 and 147 in 2012.
The SEC announced the same day that Daniel Hawke, the chief of the market abuse unit, will step down as director of the Philadelphia Regional Office to concentrate his efforts on leading the nationwide unit.
Hawke has served in dual senior officer roles at the SEC for nearly four years, leading the market abuse unit since its creation in January 2010 and directing the Philadelphia office for more than seven years. The agency noted that Hawke has "played key roles in the restructuring of the Enforcement Division and the implementation of the five specialized units as well as the Office of Market Intelligence," and has "contributed significantly" to recent enhancements in the agency’s National Exam Program.