The Securities and Exchange Commission's exam division released Wednesday a risk alert highlighting the most common advisor deficiencies related to the agency's Cash Solicitation Rule, Rule 206(4)-3, which prohibits advisors from paying a cash fee, directly or indirectly, to any person who solicits clients for the advisor, unless certain conditions are met.
The agency Office of Compliance Inspections and Examinations highlighted four deficiency areas:
Solicitor disclosure documents. Advisors' third-party solicitors did not provide solicitor disclosure documents to prospective clients or provided solicitor disclosure documents that did not contain all the information required by the rule, such as the nature of the relationship and compensation arrangement between the advisor and the solicitor.
Client acknowledgements. Advisors did not timely receive a signed and dated client acknowledgement of receipt of the advisor brochure and the solicitor disclosure document. Some advisors did receive client acknowledgements, but such client acknowledgements were undated or dated after the clients had entered into an investment advisory contract.
