Annual Compliance Considerations for RIAs-JG Presentation for LinkedIn_0A4A

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Annual Compliance Considerations for Investment Advisers PRESENTATION TO FINANCIAL PLANNING ASSOCIATION OF NEW YORK Jonathan A. Golub, Esq. November 12, 2014
AGENDA
I.Greeting and Introduction
II.End-of-Year Checklist
III.Key Dates
IV.Annual Compliance Review
V.Preparing for an SEC Exam
VI.“Recent” Developments
VII.Q&A

To Begin With…
Thank you
Introduction
Assumptions
You are a fiduciary – what does this mean?
Helpful Links:
IM Updates and Guidance: http://www.sec.gov/investment
OCIE Risk Alerts and Other Materials: http://www.sec.gov/ocie
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Annual Compliance Considerations for Investment Advisers| Jonathan A. Golub | Reitler Kailas & Rosenblatt LLC©

Fiduciary Duties
Investment advisers are fiduciaries, which generally means they must put the interests of their clients ahead of their own and act in the best interest of their clients.
The fiduciary standard for investment advisers is established through a combination of statutes, rules, court decisions, interpretive guidance and enforcement actions.
Investment advisers must adopt an internal Code of Ethics (see, Advisers Act Rule 204A-1). The Code of Ethics establishes internal standards of conduct that will help a firm meet its fiduciary obligations to clients.
At minimum, the Code of Ethics should:
•Convey the importance of ethical conduct
•Prevent and control the misuse of material, nonpublic information
•Require “access persons” to report their personal securities trading and holdings and restrict trading in securities that present conflicts of interest for the firm
•Control trading in IPOs and private placements
•Require compliance with applicable federal and state rules.
Ideally, the Code of Ethics will be the foundation for a compliance-oriented culture at your firm and should help to identify, reduce, and eliminate conflicts of interest.
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Renew your registration on IARD (See next slide)
Annual Compliance Review (See slide 5)
Annual Delivery of Privacy Notice
Form ADV Annual Updating Amendment
Annual Delivery of Brochure (Form ADV Part 2A) to each client
Personal Trading/Code of Ethics
State Notice Filings
Regulatory Change Review
Review Your Contracts – payments, calculations, reports, recurring obligations
Training (Code of Ethics and other matters determined by CCO)
Your CCO should coordinate the process and be the point person within the organization to handle testing, documentation, filings, etc.
This is not a comprehensive list; you must analyze your individual operations and identify conflicts and other compliance risk factors. Consult with your CCO as necessary.
End-of-Year Checklist 2014

IARD Renewal Program Key Deadlines:
Nov. 10: Preliminary Renewal Statement becomes available (look to see if your firm or IARs are in “pending approval” status, if so, call IARD
Dec. 12: Deadline for payment of Preliminary Renewal Statement
Dec. 15: Automatic Transfers: Firms with sufficient monies in their Flex-Funding Account will have funds transferred to their Renewal Account to cover total renewal fees owed. Transfers will be conducted every day until Web CRD/IARD shuts down for year-end processing
Dec. 27: LAST DAY to submit form filings prior to year-end
Jan. 2, 2015: Web CRD/IARD comes back online. Final Renewal Statement becomes available in Web CRD/IARD
Jan. 16: Deadline for payment of any additional amounts due
Annual Compliance Review – Now through end of year
Privacy Notice Delivery – By December 31, 2014
Form ADV – By Tues, March 31, 2015
Brochure Delivery – By Thurs, April 30, 2015
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Key Dates and Target Deadlines

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Advisers Act Rule 206(4)-7 (paraphrased): It shall be unlawful…for [registered investment advisers] to provide investment advice to clients unless they:
Adopt written compliance policies and procedures reasonably designed to prevent violation of the Investment Advisers Act;
Review at least annually the adequacy of your policies and procedures and the effectiveness of their implementation; and
Designate a CCO who is responsible for administering your policies and procedures.
Generally, what should you do?
Identify any gaps and red flags; pattern of customer complaints?
Devise an action plan to remedy any problems
Document your review (spreadsheet or other application)
Keep an issues log to record any breaches or other exceptions to your compliance manual and COE
Annual Compliance Review

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Major Areas of Review:
Portfolio Management (Allocation of opportunities; Meeting client objectives)
Trading Practices (Best Execution; Aggregation and Allocation; Trade Errors; Principal and Cross Trades)
Employee Holdings and Transactions/Proprietary Trading
Advertising and Social Media – (See, IM Guidance on Testimonial Rule and Social Media, March 2014; also see OCIE Risk Alert: “Investment Adviser Use of Social Media,” January 4, 2012)
Use of Solicitors
Asset Valuations and Fee Assessments
Privacy and Cybersecurity – (See, OCIE Cybersecurity Initiative, April 15, 2014)
Business Continuity and Disaster Recovery – (See, OCIE Study: “Joint Review of the Business Continuity and Disaster Recovery Planning of Firms,” Aug. 16, 2013)
Conflicts of Interest (Outside Business Activities, Insider Trading, Fees, etc. – note employee level and firm level conflicts)
Custody – (See, OCIE Risk Alert: “Significant Deficiencies Involving Adviser Custody and Safety of Client Assets,” March 4, 2013)
Recordkeeping (especially w/r/t labeling expenses and accounting)
Tip: Review OCIE’s National Examination Program Priorities for areas considered “high risk” (http://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2014.pdf)
Annual Compliance Review

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Per OCIE’s 2014 National Examination Program Priorities, the SEC is focusing on Retirement Vehicles and 401(k) Rollovers. The SEC will examine:
Investment advisers’ sales practices targeting retirement-age workers to roll over their employer-sponsored 401(k) plan into higher cost investments, including whether advisers are misrepresenting their credentials or the benefits and features of individual retirement account (“IRA”) plans or other alternatives; and
Possible improper or misleading marketing and advertising, conflicts, suitability, churning, and the use of potentially misleading professional designations when recommending the movement of assets from a retirement plan to an IRA rollover account in connection with a customer’s or client’s change of employment.
This should be viewed in conjunction with OCIE’s Never-Before-Examined Initiative, which is ongoing and designed to engage with investment advisers that have been registered for 3+ years and have not been previously examined
Focus areas: filings, marketing, portfolio management, custody
Preparing for an SEC Examination

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IM Guidance on Testimonial Rule and Social Media, March 2014
Client testimonials are prohibited under Rule 206(4)-1(a)(1)
Are testimonials on 3d party websites (like Yelp, Angie’s List, etc.) considered a testimonial?
SEC staff interpretation: testimonials are a “statement of a client’s experience with, or endorsement of, an investment adviser”
OCIE Risk Alert on Deficiencies Involving Custody and Safety of Client Assets, March 4, 2013
Deficiencies included failures to:
recognize that an adviser had custody (you have custody if you are a related person holds client funds or securities or have any authority to obtain possession of them – serving as trustee or having a POA, authorization to withdraw funds, online access to client accounts, receipt of checks);
comply with surprise exam requirement: Form ADV-E; routine exams posited as “surprise” exams
satisfy qualified custodian requirement: no reasonable basis to believe the QC was sending quarterly account statements, etc.
properly rely on the “audit approach” with respect to private funds
Recent SEC Cease-and-Desist Order: Sands Brothers Asset Management (October 2014)
Certain “Recent” Developments

OCIE Cybersecurity Initiative, April 15, 2014
OCIE will examine more than 50 BDs and IAs, focusing on cybersecurity governance, identification and assessment of cybersecurity risks, protection of networks and information, risks associated with remote customer access and funds transfer requests, vendors and 3d parties, and detection of unauthorized activity
Provides a sample list of requests for information regarding: physical devices and systems, software, networks, storage of customer data, written information security policy, cybersecurity loss insurance, etc.
Dovetails with OCIE’s 2013 study on business continuity and disaster recovery plans in the wake of Superstorm Sandy
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Certain “Recent” Developments (Continued)

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Thank you.
Jonathan A. Golub
Reitler Kailas & Rosenblatt LLC
885 Third Avenue, 20th Floor
New York, New York 10022-4834
Phone: 212.209.3064
E-Mail: jgolub@reitlerlaw.com
Web: www.reitlerlaw.com

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