Fresh off starting their new positions at Regulatory Compliance Associates, Craig Moreshead and Lori Weston have zeroed in on three issues they should be on advisors’ radar screens: the Securities and Exchange Commission’s pay-to-play rule and Form PF as well as the use of social media.
While both are busy assisting client firms with registration issues surrounding the switching of advisors from federal to state registration, Moreshead and Weston told AdvisorOne they are also looking at issues that are bringing a lot of inquiries like the SEC’s pay-to-play rule, which Moreshead says is “not so new; it came out about a year ago, but it is certainly new to managers who haven’t been registered before and haven’t had to deal with it. It’s a unique regulation, and certainly the penalties are severe if you go awry.”
The pay-to-play rule 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.
The pay-to-play rules are “a challenge for advisors because it is a trap for the unwary, especially since political contributions are beyond the purview of what an advisor would normally consider investment-related compliance.” Not only that, but the involvement of hiring personnel also comes into compliance, he says, thanks to the “look back” provision that attributes to the firm political contributions made by new employees up to six months prior to employment—going back two years instead of six months, if the new employee is a solicitor.
He continues, “The books and records requirement to maintain a record of all government entities to which the firm has provided advisory services also presents challenges for many firms (especially those firms providing advisory services to registered investment companies or private funds in which government entities are investors).”
It’s also important to remember, he adds, “the severity of the penalties for non-compliance where a firm would be barred from receiving compensation from a government entity within two years after a contribution has been made. In addition, private fund managers who are exempt from registration (i.e., exempt reporting advisors) are subject to the play to play rule.”
Social media is a fairly new topic that is also on “the radar screen of the SEC and the states,” says Moreshead. Questions are already coming in on what a firm’s policy ought to be in practice and controls, he says. In this area as in so many others in the field of compliance, he points out that for each firm the correct policy will be different. A formula for compliance in this arena is definitely not one-size-fits-all.
A third subject that is also already an area of interest to client firms as they prepare to satisfy regulators is Form PF, which, says Moreshead, isn’t in effect yet, but will require a lot of disclosures on the part of private fund managers. He adds, “We’re getting questions on those, and looking at those requirements and how we might be able to service clients in that area.”