Articles Tagged with Form ADV

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The following are some of the important annual compliance obligations investment advisers either registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Adviser”) and commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”) registered with the Commodity Futures Trading Commission (the “CFTC”) should be aware of.

This summary consists of the following segments: (i) List of Annual Compliance Deadlines; (ii) 2017 Enforcement Priorities In The Alternative Space; (iii) New Developments; and (iv) Continuing Compliance Areas.

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Table of Annual Compliance Deadlines……………………………………………………………. 3

2017 Enforcement Priorities In The Alternative Space………………………………………. 5

New Developments………………………………………………………………………………………. 7

 

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On July 14, 2016, the Securities and Exchange Commission (SEC) announced an enforcement action against RiverFront Investment Group, LLC, a registered investment adviser serving as sub-adviser to clients in wrap fee programs established by various sponsors. The enforcement action resulted from RiverFront’s materially inadequate disclosure about changes in its trading practices and attendant transaction costs which exceeded wrap fees and caused millions of dollars in extra transaction costs for its clients.

In its role as sub-adviser, RiverFront had discretion to determine whether to send trades to sponsor-designated broker-dealers (whose costs were covered under the wrap fee program) or to other brokers in which case the clients would pay additional transaction costs. Wrap fee programs enable clients to pay one fee to cover a bundle of services, including, for example, trading, investment management and custody. From 2008 to 2011, RiverFront disclosed on its Form ADV that trades were “generally” executed through designated broker-dealers. It also disclosed that it may trade away in an effort to obtain best execution on behalf of its clients. A “trade away” is the practice of sending trades to a broker-dealer that has not previously been designated. In 2009, RiverFront started trading away significantly more transactions and charging clients fees that were not included in the annual wrap fee. However, in its annual Form ADV amendment filings from 2009 to 2011, RiverFront did not change its disclosures to reflect the frequency of its trade aways.

It was RiverFront’s failure to accurately and timely disclose on its Form ADV its trading practices and the potential for additional transaction costs that resulted in the SEC sanctions. The SEC held that RiverFront willfully violated Sections 207 and 204(a) of the Investment Advisers Act of 1940 and Rule 204-1(a) thereunder.

The SEC imposed sanctions against RiverFront, namely:

  • censorship; and
  • a $300,000 fine.

RiverFront also undertook to disclose quarterly on its website the volume of trades executed with non-designated brokers and the costs to be passed onto clients.

The RiverFront enforcement action serves as a reminder to investment advisers to review their Forms ADV to ensure that trading practices, costs and other material information regarding their advisory businesses are adequately and accurately disclosed.  Please contact an Investment Funds and Investment Management Group attorney for assistance with issues pertaining to Form ADV disclosure and related matters.

The SEC Press Release can be found here.

The full text of the SEC order can be found here.

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At the end of this month, the annual updating amendments for investment advisers’ Form ADV will be due. The following are some of the important annual compliance obligations investment advisers either registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Adviser”) and commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”) registered with the Commodity Futures Trading Commission (the “CFTC”) should be aware of.

This summary consists of the following segments: (i) List of Annual Compliance Deadlines; (ii) 2016 Enforcement Priorities In The Alternative Space; (iii) New Developments; and (iv) Continuing Compliance Areas.

See the deadlines below and in red

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The Securities and Exchange Commission (SEC) today proposed rules, forms and amendments to modernize and enhance the reporting and disclosure of information by investment advisers and investment companies.

Investment advisers. The investment adviser proposed rules would amend the investment adviser registration and reporting form (Form ADV), and Investment Advisers Act Rule 204-2. On Form ADV, the proposed rules would require investment advisers to provide additional information for the SEC and investors to better understand the risk profile of individual advisers and the industry. Investment advisers would be required to report, among other things, detailed information about their separately managed accounts, including assets under management and types of assets held in the accounts. The proposed amendments to Investment Advisers Act Rule 204-2 would require advisers to maintain records of performance calculations and communications related to performance.

Investment companies. The investment company proposed rules would enhance data reporting for mutual funds, ETFs and other registered investment companies.  The proposals would require a new monthly portfolio reporting form (Form N-PORT) and a new annual reporting form (Form N-CEN) that would require census-type information.  The information would be reported in a structured data format, which would allow the SEC and the public to better analyze the information.  The proposals would also require enhanced and standardized disclosures in financial statements, and would permit mutual funds and other investment companies to provide shareholder reports by making them accessible on a website.

Highlights of the investment adviser and investment company proposals are available HERE.

The SEC is requesting for comments which should be submitted to be received within 60 days from publication of the proposed rules in the Federal Register.

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We want to remind you of your firm’s annual investment adviser registration amendment (Form ADV annual amendment) which must be filed on the IARD system on or before March 31, 2015.  This deadline applies to all SEC and State registered advisers as well as Exempt Reporting Advisers (ERAs) with a December 31, 2014 fiscal year end.

Please let us know as soon as you can if you need our assistance in preparing and submitting your Form ADV annual amendment filing this year.

Also, for SEC registered advisers and ERAs, please note that your annual IARD fee must be paid before you can submit your annual amendment.  The fees are based on your firm’s regulatory assets under management as follows:

Regulatory Assets
Under Management
Initial
Registration Fee
Annual Updating
Amendment Fee
$100 million or more $225 $225
$25 million to $100 million $150 $150
Less than $25 million $40 $40
SEC Exempt Reporting Adviser $150 $150

To view FINRA’s current IARD Account Payment Methods and Addresses, please click HERE.

If you or your compliance officer is handling your Form ADV filing and you would like us to review your drafts, please feel free to contact us also.

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Annual Compliance Obligations—What You Need To Know

As the new year is upon us, there are some important annual compliance obligations Investment Advisers either registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Adviser”) and Commodity Pool Operators (“CPOs”) or Commodity Trading Advisors (“CTAs”) registered with the Commodity Futures Trading Commission (the “CFTC”) should be aware of.

See upcoming deadlines below and in red throughout this document.

The following is a summary of the primary annual or periodic compliance-related obligations that may apply to Investment Advisers, CPOs and CTAs (collectively, “Managers”).  The summary is not intended to be a comprehensive review of an Investment Adviser’s securities, tax, partnership, corporate or other annual requirements, nor an exhaustive list of all of the obligations of an Investment Adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) or applicable state law.  Although many of the obligations set forth below apply only to SEC-registered Investment Advisers, state-registered Investment Advisers may be subject to similar and/or additional obligations depending on the state in which they are registered.  State-registered Investment Advisers should contact us for additional information regarding their specific obligations under state law.

List of annual compliance deadlines:

State registered advisers pay IARD fee November-December (of 2014)
Form 13F (for 12/31/14 quarter-end) February 17, 2015*
Form 13H annual filing February 17, 2015
Schedule 13G annual amendment February 17, 2015
Registered CTA Form PR (for December 31, 2014 year-end) February 17, 2015
TIC Form SLT January 23, 2015 (for December 2014)
TIC Form SHCA March 6, 2015
TIC B Forms Monthly report (December 2014) – by January 15, 2014Quarterly report (December 31, 2014) – by January 20, 2014
Affirm CPO exemption March 2, 2015
Registered Large CPO Form CPO-PQR December 31 quarter-end report March 2, 2015
Registered CPOs filing Form PF in lieu of Form CPO-PQR December 31 quarter-end report March 31, 2015
Registered Mid-Size and Small CPO Form CPO-PQR year-end report March 31, 2015
SEC registered advisers and ERAs pay IARD fee Before submission of Form ADV annual amendment by March 31, 2015
Annual ADV update March 31, 2015
Delivery of Brochure April 30, 2015
Delivery of audited financial statements (for December 31, 2014 year-end) April 30, 2015
California Finance Lender License annual report (for December 31, 2014 year- end) March 15, 2015
Form PF filers pay IARD fee Before submission of Form PF
Form PF for large liquidity fund advisers (for December 31, 2014 quarter end) January 15, 2015
Form PF for large hedge fund advisers (for December 31, 2014 quarter end) March 2, 2015
Form PF  for smaller private fund advisers and large private equity fund advisers (for December 31, 2014 fiscal year-end) April 30, 2015
FBAR Form FinCEN Report 114 (for persons meeting the filing threshold in 2014 and those persons whose filing due date for reporting was previously extended by Notices 2013-1, 2012-2, 2012-1, 2011-2 and 2011-1) June 30, 2015
FATCA information reports filing for 2014 by participating FFIs March 31, 2015
Form D annual amendment One year anniversary from last amendment filing.

* Reflects an extended due date under Exchange Act Rule 0-3.  If the due date of filing falls on a Saturday, Sunday or holiday, a report is considered timely filed if it is filed on the first business day following the due date.

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This is a reminder that the 2015 IARD account renewal obligation for investment advisers (including exempt reporting advisers) starts this November.  An investment adviser must ensure that its IARD account is adequately funded to cover payment of all applicable registration renewal fees and notice filing fees.

Key Dates in the Renewal Process:

November 10, 2014 – Preliminary Renewal Statements which list advisers’ renewal fee amount are available for printing through the IARD system.

December 12, 2014 – Deadline for full payment of Preliminary Renewal Statements.  In order for the payment to be posted to its IARD Renewal account by the December 12 deadline, an investment adviser should submit its preliminary renewal fee to FINRA through the IARD system by December 10, 2014.

December 28, 2014 – January 1, 2015 – IARD system shut down.  The system is unavailable during this period.

January 2, 2015 – Final Renewal Statements are available for printing.  Any additional fees that were not included in the Preliminary Renewal Statements will show in the Final Renewal Statements.

January 16, 2015 – Deadline for full payment of Final Renewal Statements.

For more information about the 2015 IARD Account Renewal Program including information on IARD’s Renewal Payment Options and Addresses, please visit http://www.iard.com/renewals.asp

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As the new year is upon us, there are some important annual compliance obligations Investment Advisers either registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Adviser”) and Commodity Pool Operators (“CPOs”) or Commodity Trading Advisors (“CTAs”) registered with the Commodity Futures Trading Commission (the “CFTC”) should be aware of.

See upcoming deadlines below and in red throughout this document.

The following is a summary of the primary annual or periodic compliance-related obligations that may apply to Investment Advisers, CPOs and CTAs.  The summary is not intended to be a comprehensive review of an Investment Adviser’s securities, tax, partnership, corporate or other annual requirements, nor an exhaustive list of all of the obligations of an Investment Adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) or applicable state law.  Although many of the obligations set forth below apply only to SEC-registered Investment Advisers, state-registered Investment Advisers may be subject to similar and/or additional obligations depending on the state in which they are registered.  State-registered Investment Advisers should contact us for additional information regarding their specific obligations under state law.

List of annual compliance deadlines in chronological order:

 

State registered advisers pay IARD fee November-December (of 2013)
Form 13F (for 12/31/13 quarter-end) February 14, 2014
Form 13H annual filing February 14, 2014
Schedule 13G annual amendment February 14, 2014
Registered CTA Form PR (for December 31, 2012 year-end) February 14, 2014
TIC Form SLT Every 23rdcalendar day of the month following the report as-of date
TIC Form SHCA March 3, 2014
Affirm CPO exemption March 3, 2014
Registered Large CPO Form CPO-PQR December 31 quarter-end report March 3, 2014
Registered CPOs filing Form PF in lieu of Form CPO-PQR December 31 quarter-end report March 31, 2014
Registered Mid-Size and Small CPO Form CPO-PQR year-end report March 31, 2014
SEC registered advisers and ERAs pay IARD fee Before submission of Form ADV annual amendment by March 31, 2014
Annual ADV update March 31, 2014
Delivery of Brochure April 30, 2014
Form PF filers pay IARD fee Before submission of Form PF
Form PF (for advisers required to file within 120 days after December 31, 2013 fiscal year-end) April 30, 2014
FBAR Form TD F 90-22.1 (for persons meeting the filing threshold in 2013) June 30, 2014
FATCA registration Must be completed by April 25, 2014
Form D annual amendment One year anniversary from last amendment filingIf the fund will be using 506(c) to generally solicit, the Form D must be amended to check the box that indicates the offering will be made under 506(c) 

 

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Written by:  Jay B. Gould

On October 23, 2013, the Securities and Exchange Commission (“SEC”) brought charges against three different investment advisory firms for recidivist behavior.  The enforcement actions came out of the SEC’s Compliance Program Initiative, which targets firms that have been previously warned by SEC examiners about compliance deficiencies, but failed to effectively act upon those warnings.  The enforcement actions came out of the SEC’s Compliance Program Initiative, which targets firms that have been previously warned by SEC examiners about compliance deficiencies but failed to effectively act upon those warnings.  The SEC takes the view that investment advisory firms that ignore findings in deficiency letters, or represent that corrective action will or has been taken, and then do not take such corrective action, should be provided special treatment.  The SEC Enforcement Division’s Asset Management Unit has coordinated with examiners to bring several cases since the initiative began two years ago

The firms charged, Modern Portfolio Management Inc., Equitas Capital Advisers LLC, and Equitas Partners LLC, agreed to settlements in which they will pay financial penalties and hire compliance consultants.  Since the adoption of Rule 206(4)-7 under the Investment Advisers Act (“Compliance Rule”), requiring an investment adviser to hire an outside compliance consultant has been a preferred remedy imposed by the SEC.  .

The SEC’s order against Modern Portfolio Management (“MPM”) and its owners found that they failed to correct ongoing compliance violations, such as failing to complete annual compliance reviews in 2006 and 2009, and making misleading statements on their website and investor brochure.  According to the SEC findings, one location on MPM’s website represented that the firm had more than $600 million in assets.  However, on its Form ADV filing to the SEC during that same time period, MPM reported that the firm’s assets under management were $359 million or less.  Asset inflation, as well as education and professional experience “enhancement” are two favorites among Advisers Act violators, and fairly easy to verify by SEC examiners. 

MPM and their owners agreed to be censured and pay a total of $175,000 in penalties.  The two principals of MPM were required to complete 30 hours of compliance training, a remedy seemingly very close to violating the 8th Amendment.  MPM also agreed to designate someone other than the two principals to be its chief compliance officer, and is also required to retain a compliance consultant for three years.

According to the SEC’s orders against New Orleans-based Equitas Capital Advisers and Equitas Partners as well as their owner, current chief compliance officer, and former owner and chief compliance officer, they failed to adopt and implement written compliance policies and procedures and conduct annual compliance reviews to satisfy the Compliance Rule.  The SEC charged the Equitas firms with making false and misleading disclosures about historical performance, compensation, and conflicts of interest, and repeatedly overbilled and underbilled their clients.  Many of these violations occurred despite warnings by SEC examiners during examinations of the Equitas firms in 2005, 2008, and 2011.  Equitas and the named individuals failed to disclose these deficiencies to potential clients in response to questions in certain due diligence questionnaires or requests for proposals.  

The former owner of Equitas, who later went on to form Crescent Capital Consulting, an investment advisory firm, was also found to have been responsible for Compliance Rule violations at his new firm (as well as at Equitas) by inflating the amounts of assets under management of both firms their respective Forms ADV by improperly removing and retaining nonpublic personal client information when he left Equitas.

Equitas Capital Advisers and Crescent reimbursed all overcharged clients, and agreed to pay a total of $225,000 in additional penalties, but presumable did not go back after the clients that they undercharged. The Equitas firms agreed to censures, and both the Equitas firms and Crescent were required to hire an independent compliance consultant.  Perhaps the most damaging sanction was that the Equitas firms and Crescent are required to provide notice to clients regarding the SEC enforcement actions. 

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As the new year is upon us, there are some important annual compliance obligations Investment Advisers either registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Adviser”) should be aware of.

See upcoming deadlines below and in red throughout this document.

The following is a summary of the primary annual or periodic compliance-related obligations that may apply to Investment Advisers.  The summary is not intended to be a comprehensive review of an Investment Adviser’s securities, tax, partnership, corporate or other annual requirements, nor an exhaustive list of all of the obligations of an Investment Adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) or applicable state law.  Although many of the obligations set forth below apply only to SEC-registered Investment Advisers, state-registered Investment Advisers may be subject to similar and/or additional obligations depending on the state in which they are registered.  State-registered Investment Advisers should contact us for additional information regarding their specific obligations under state law.

List of annual compliance deadlines in chronological order:

State registered advisers pay IARD fee November-December (of 2012)
Form 13F (for 12/31/12 quarter-end) February 14, 2013
Form 13H annual filing February 14, 2013
Schedule 13G annual amendment February 14, 2013
Registered CTA Form PR (for December 31, 2012 year-end) February 14, 2013
TIC Form SLT Every 23rd calendar day of the month following the report as-of date
TIC Form SHCA March 1, 2013
Affirm CPO exemption March 1, 2013
Registered Large CPO Form CPO-PQR December 31 quarter-end report March 1, 2013
Registered Small CPO Form CPO-PQR year-end report March 31, 2013
Registered Mid-size CPO Form CPO-PQR year-end report March 31, 2013
Registered CPOs filing Form PF in lieu of Form CPO-PQR December 31 quarter-end report March 31, 2013
SEC registered advisers and ERAs pay IARD fee Before submission of Form ADV annual amendment by March 31, 2013
Annual ADV update March 31, 2013
Delivery of Brochure April 30, 2013
Form PF Filers pay IARD fee Before submission of Form PF
Form PF (for advisers required to file within 120 days after December 31, 2012 fiscal year-end) April 30, 2013
FBAR Form TD F 90-22.1 (for persons meeting the filing threshold in 2012) June 30, 2013
Form D annual amendment One year anniversary from last amendment filing

 

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