The SEC’s Division of Investment Management has posted Coronavirus (COVID-19) Response FAQs (the “FAQs”), which have been updated through April 14, 2020. The FAQs summarize and provide links to various forms of relief granted by the SEC and the Division to registered investment companies and investment advisers. A list of the questions addressed is provided below.
Continue Reading SEC Provides a Consolidated Reference for COVID-19 Relief for Investment Companies and Advisers

On June 5, 2019, the U.S. Securities and Exchange Commission (“SEC”) adopted a package of rules and interpretations relating to the standards of conduct for broker-dealers and investment advisers, including a new “best interest” rule for broker-dealers. The package was adopted by a 3-1 vote, with Commissioner Robert J. Jackson Jr. as the lone dissenter. Chairman Jay Clayton, who supported the package, stated that the SEC was not adopting a uniform fiduciary rule for broker-dealers and investment advisers. Instead, Chairman Clayton explained that “Regulation Best Interest incorporates fiduciary principles, but is appropriately tailored to the broker-dealer relationship model and will preserve retail investor access and choice.” Chairman Clayton, as well as the SEC’s press release, emphasized that Regulation Best Interest cannot be satisfied by disclosure alone, but rather through compliance with each of the rule’s four substantive obligations.

The actions taken on June 5 include the following:


Continue Reading SEC Adopts Package of Reforms Aimed at Raising the Standard of Conduct for Brokers and Clarifying an Investment Adviser’s Fiduciary Duty

My first post discussed the SEC’s Office of Compliance Inspections and Examination’s (“OCIE’s”) recent Risk Alert (the “Alert”) and specific fund categories in its crosshairs. This post will cover the three remaining fund categories and general examination issues identified by OCIE in the Alert.

Continue Reading OCIE Announces Risk-Based Exam Initiatives for Mutual Funds—Part 2

Currently, many investment advisory firms indicate to the Securities and Exchange Commission (SEC) on their Form ADV filings that they have “relying advisers.”  With the SEC’s adoption on August 25, 2016, of amendments to Form ADV, the landscape for related advisers has changed substantially under a new “umbrella registration” regime.
Continue Reading Form ADV Amendments: Relying Advisers in Focus

Late last fall, Congress faced a serious crisis in trying to pass a comprehensive transportation bill, designated as the Fixing America’s Surface Transportation (FAST) Act.  Amendments to various Federal securities and banking laws were added to the FAST Act during the reconciliation process. These amendments had not been the subjects of serious hearings in either house of Congress and were such narrow, rifle-shot changes as to deserve to be considered special pleading. Some commentary has already been published regarding amendments to  the Securities Act of 1933, which included codification in Section 4(a)(7) of what had been previously referred to as the Section 4(1½) exemption: a long-standing interpretation permitting the resale of unregistered securities to sophisticated investors without causing the seller to be an underwriter. Certain Silicon Valley investors apparently considered Section 4(1½) too delimiting, leading to the statutory changes that should facilitate greater liquidity for those investors, hopefully making it easier for early state start-ups to raise additional capital.

The FAST Act also amended two provisions of the Investment Advisers Act of 1940 (“Advisers Act”).  Readers will recall that the Dodd-Frank Act included exemptions from SEC registration for venture capital advisers, family offices and certain hedge fund advisers. The SEC promptly adopted regulations to implement these exemptions. Section 203(l) exempts investment advisers whose only clients were one or more “venture capital funds” as defined in Rule 203(l)-1. Rule 203(m)-1 exempts investment advisers solely to private funds that had assets under management in the United States of less than $150 million.
Continue Reading SEC Staff Puts a Bow on Gifts from Christmas 2015 Legislation

As of January 1, 2016, a person defined as a “finder” will become exempt from the broker-dealer provisions of the California Securities Law of 1968, as amended. Under that law, the Commissioner of Business Oversight regulates the activities of broker-dealers. Assembly Bill No. 667, Section 25206.1 will exempt a “finder” from registration with the Commissioner as a broker-dealer.
Continue Reading Welcoming “Finders” in from the Cold in California

The Family Office Rule states that a family office cannot have any clients other than family clients. The term “family client” is defined in paragraph (d)(4) of the Family Office Rule to include any family member, any key employee, certain non-profit organizations, certain irrevocable and revocable trusts, and certain wholly-owned companies, all as set forth in subparagraphs (i), (iii), (v), and (vii) – (xi) of that paragraph. It was intended that a person who was a “family client” would never cease to be a client of the family office except under unusual circumstances. To that end, there are exceptions in subparagraphs (ii), (iv), and (vi) of that paragraph for former family members, for former key employees, and for the estates of family members, former family members, and former key employees.
Continue Reading Can a Family Office Client Ever Cease to be a “Client;” Can a Non-Family Third Party Ever Become a “Client” of a Family Office?

My initial post examined the risk of miscalculating regulatory assets under management (“RAUM”) for purposes of registering with the SEC as an investment adviser. This post shows that the SEC is highly motivated to bring reasonably punitive enforcement proceedings against investment advisers that “voluntarily” register with the SEC instead of with the appropriate state.
Continue Reading Federalism, Regulatory Assets under Management (“RAUM”), and Voluntary Registration with the SEC as an Investment Adviser — Part Two

I intend to share musings on fiduciary matters from time-to-time on our blog. Not regarding deep and complex matters such as the current DOL proposal or the SEC’s forthcoming uniform fiduciary standard. My fiduciary questions are more fundamental, and sometimes lead me to despair of formulating sensible views of such proposals. I suspect I am not alone in struggling to develop a framework for understanding fiduciary regulation, so I’m sharing my struggles.
Continue Reading Encomium for Professor Frankel