Advisors: When’s the Last Time You Updated Your LLC Operating Agreement?

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A limited liability company is as easy to set up as it is to screw up. Though it is justifiably advisors’ favored business structure due to its simplicity, flexibility and liability protections, there are still a select few “corporate formalities” that should be observed. The primary such formality is what’s known as the operating agreement, and it is just as important to keep it updated as it is to draft it in the first place. Wyoming created the first limited liability company act in 1977, and other states followed suit in due course. LLCs are thus governed by state law, […]

Five Not-So-Bold Regulatory Predictions for 2016

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I can’t guarantee much from my personal crystal ball, but looking across the regulatory horizon into 2016 there is one undeniable certainty: Securities attorneys will be just fine. The sheer volume of complicated rulemaking that is pouring out of Washington bodes well for billable hours but not for bottom lines. Only time will tell which (if any) of my other predictions below come to pass, but don’t fret about your JD friends…they’ll be anything but bored. Robo-Advisors: Skepticism and Scrutiny by the SEC Regulators’ skeptical attitude toward robo advice (and bias, some may argue) first reared its head in May […]

Advisor Reliance on Compliance Consultants Hangs in the Balance

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October 26th marked the final day of briefing before the SEC in what could be a very precedential case for investments advisors, compliance officers and the independent compliance consulting community. In the Matter of The Robare Group, Ltd. began its life in September 2014 as an order instituting administrative and cease-and-desist proceedings against a Houston-based advisor and its principals for alleged undisclosed conflicts of interest. In June 2015, an administrative law judge found that the SEC’s Division of Enforcement failed to meet its burden in proving Robare’s alleged violations, and dismissed the matter in its entirety. It was a rare win […]

What Exactly is “Distribution in Guise” and Why Does the SEC Care?

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This past week the SEC announced a $40 million enforcement action against investment advisor First Eagle Investment Management and its affiliated broker-dealer FEF Distributers for what it touted as the first to arise from its “distribution-in-guise” initiative. Advisors to funds have been anxiously awaiting some sort of guidance since the SEC first announced the initiative several years ago, but as is all too often the case, it has finally arrived in the form of an enforcement action. To understand what the SEC is really after with its distribution-in-guise initiative, it’s helpful to take a step back to 1980: Ronald Reagan […]

Boiling Down the Boilerplate in Advisory Contracts

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Investment advisory contracts (and most contracts, in general) are typically long, laborious and full of legalese. Paid-by-the-word attorneys have to pay for their silk ties somehow, right? If drafted properly, however, such contracts can also be immensely helpful in clarifying roles and responsibilities between the advisor and the client, and will hopefully decrease the likelihood of future disputes due to misinterpretations. All investment advisory contracts must meet the requirements of Section 205 of the Advisers Act, but that’s not what this article is about. If you’d like to learn more about hedge clause and assignment restrictions contained in Section 205, […]

Live By the Code

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After Henry Hill took his first pinch in Goodfellas, Jimmy Conway praised young Henry in the courtroom for learning and personifying the Mafia code: “Never rat on your friends and always keep your mouth shut.” While certainly one of the great bro-quotes in movie history, I don’t think I’m venturing too far out on a limb to suggest that the SEC would take issue with that code. In fact, the SEC imposes its own code on its registrants, and that code can be found in SEC Rule 204A-1. The code I’m speaking of is the code of ethics, and each […]

Trust No One

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As of the writing of this article, 74 of the 129 SEC press releases year-to-date announce enforcement actions, settlements and other financial professional misdeeds. Mind you, these are not press releases of the Division of Enforcement within the SEC, but the SEC as a whole. The other 55 generally speak to administrative matters or announce that the revolving door of staff has spun another cycle. FINRA’s press releases year-to-date paint a similar picture, mainly focusing on fines, cease-and-desist orders and industry bars. Collectively it appears as if our regulators are conveying to the investing public the same ominous warning that […]