The Importance of Supervision and the Failure to Supervise

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“Supervision” is one of those compliance buzzwords that gets tossed around without much explanation, like its meaning is taken for granted and assumed to be obvious. I submit to you that it is not, especially when it comes to demonstrating that adequate supervision of a person, process, product, or policy has occurred. But why should advisers care about supervision at all? The concept of supervision is sprinkled throughout the regulatory sandbox that the SEC has built for advisors to play within. The foundation of this sandbox is the Investment Advisers Act of 1940, which introduces the definition of both a […]

New York RIA Registration Quirks

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As I described in a prior article, the duality of the state and federal registration regime for investment advisers has resulted in a bit of a regulatory maze – especially for new advisers seeking registration at the state level. Determining when and where registration is required is not always intuitive, and state investment adviser regulations can vary rather dramatically from state to state. Yet one state stands out as perhaps the quirkiest: New York. First of all, New York does not register investment adviser representatives. This means that it does not participate in the Form U4 filing process administered by […]

How to (Legally) Settle Disputes with Clients

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A little less than a year ago, I wrote an article about alternatives to mandatory arbitration for resolving disputes between advisors and their clients (see, Beyond Mandatory Arb: 4 Options for Advisor-Client Dispute Resolution). Consider this article the prequel. Indeed, there is an even more attractive means to resolve a dispute before suiting up for court or arbitration… Just settle the damn thing. Settlement between quarreling adversaries is statistically the most common resolution. According to FINRA’s 2016 Dispute Resolution Statistics, 50% of all FINRA arbitrations are settled independently between the parties; only 21% of arbitrations are actually decided by an […]

A Few Thoughts on the SEC’s Robare Decision

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There’s a State Farm commercial currently on TV that depicts Green Bay Packers quarterback Aaron Rodgers attempting to kill a fly in his house using a golf club. He swings wildly at the fly, loses his grip on the club, and sends it crashing through his bay window and into the side of a truck parked outside. With shattered glass everywhere and the truck’s alarm blaring, teammate Clay Matthews asks Rodgers “Well, did you get it?” Rodgers shrugs unknowingly. The more I think about it, the more I see a parallel to the SEC Commissioners’ November 6th opinion, In the Matter of […]

Adviser Changes of Control: An Elusive Definition

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In some form or another, nearly every registered investment adviser will at some point be involved in a merger, acquisition, sale, or restructuring. Whether it’s a simple equity ownership stake by a new financier, the addition of a new partner, a union of two practices, the death of a major shareholder or the full-blown execution of a succession plan, RIAs will inevitably need to navigate SEC “change of control” rules and guidance. Such rules and guidance are rooted in the requirement that investment advisory contracts may not be assigned without client consent. I discussed the interplay of positive and negative […]

State De Minimis Registration Considerations for Advisors

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Federalism can be a real pain in the neck sometimes. While the duality of both state and federal government has endured and served our country well, it has made investment advisor registration at the state level a mix of hard-to-find statutes, non-intuitive exceptions and revenue grabs. The most notable of these state-by-state registration quirks is the infamous “de minimis” exemption from registering as an investment advisor in a particular state. The National De Minimis Standard, as it is officially referred to, is contained in Section 222(d) of the Investment Advisers Act of 1940. It traces its roots back to 1997, […]

The Implications of Investment Discretion

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Last month I penned an article that described how the SEC expects advisors to calculate their Regulatory Assets Under Management (“RAUM”) with respect to investment management and financial planning clients. Only securities portfolios for which the advisor provides “continuous and regular supervisory or management services” count toward RAUM, but advisors that do so on a discretionary basis have a lower burden to overcome than non-discretionary advisors. This month’s article attempts to answer the next logical question: how do I know if my firm has investment discretion? The simplest definition can be found in the Form ADV Glossary, which states that […]