TreatiseTreatise

Investment Adviser Regulation: A Step-by-Step Guide to Compliance and the Law (3rd Edition)

 by Clifford E Kirsch
 
 Copyright: 2011-2017
 Last Updated: October 2017

 Product Details >> 

Product Details

  • ISBN Number: 9781402416903
  • Page Count: 1426
  • Number of Volumes: 3
  •  

Investment Adviser Regulation: A Step-by-Step Guide to Compliance and the Law guides practitioners through the maze of statutory, SEC, and state standards impacting investment advisers, as well as provides advice on the practical aspects of building a practice. This book clarifies key status issues that determine registration and disclosure duties as well as liability exposure. It provides guidance and instruction on how to:

  • File and update Form ADV
  • Draft advisory contracts
  • Follow stringent advertising guidelines
  • Structure compliant soft-dollar arrangements
  • Meet best execution requirements and other practice standards
  • Satisfy record-keeping rules

The third edition of Investment Adviser Regulation describes Regulation S-AM, which tightens the privacy requirements on client financial information; various proposals on harmonizing broker-dealer and financial adviser regulation; proposals on increased fiduciary responsibilities; the need for the development of improved risk management systems as a result of recent market disruptions; and the Yates Memo, which sets forth the “six key steps to strengthen [DOJ’s] pursuit of individual corporate wrongdoing,” and its implication on recent FCPA prosecutions.

Updated at least once a year, Investment Adviser Regulation: A Step-by-Step Guide to Compliance and the Law is an essential resource for investment advisers, securities attorneys, compliance personnel, and federal and state regulators, and a useful reference for today's investors.
  Table of Contents
Chapter 1: Overview
  • § 1:1 : The Investment Advisory Profession1-3
  • § 1:2 : Sources of Law1-3
  • § 1:3 : The Investment Advisers Act of 19401-5
    • § 1:3.1 : A Glance at the Advisers Act Regulatory Framework1-7
      • [A] : Registration Under the Investment Advisers Act1-7
      • [B] : Conduct Standards/Restrictions on Activities1-7
      • [C] : Attracting Clients1-8
        • [C][1] : Advertising1-8
        • [C][2] : Referral Fees1-8
      • [D] : The Adviser-Client Relationship1-9
        • [D][1] : Advisory Agreements1-9
        • [D][2] : Compensation1-9
        • [D][3] : Suitability1-9
        • [D][4] : Custody1-9
        • [D][5] : Proxy Voting1-10
      • [E] : Brokerage and Trading Pictures1-10
        • [E][1] : Duty of Best Execution1-10
        • [E][2] : Soft Dollars1-10
        • [E][3] : Trading1-10
      • [F] : Interaction with Government Municipalities: Pay to Play Practices1-11
      • [G] : Compliance1-11
        • [G][1] : Record-Keeping Obligations1-11
        • [G][2] : Compliance Program: Rule 206(4)-71-12
        • [G][3] : Insider Trading and Code of Ethics1-12
        • [G][4] : Privacy1-13
        • [G][5] : Business Continuity Planning1-13
  • § 1:4 : State Law1-13
    • § 1:4.1 : Overview of State Securities Regulation1-13
      • [A] : State Uniformity1-14
        • [A][1] : Uniform Securities Acts1-14
        • [A][2] : North American Securities Administrators Association, Inc.’s Model Laws1-15
        • [A][3] : National Securities Markets Improvements Act1-15
    • § 1:4.2 : State Regulation of State-Registered Advisers and Their Personnel1-15
      • [A] : Jurisdictional Issues1-16
        • [A][1] : Definition of an Adviser Under State Law1-16
        • [A][2] : Which State’s Law Applies1-16
          • [A][2][a] : Sorting Out Multiple State Regulation1-16
            • [A][2][a][i] : Relief for Advisers Registered in Multiple States—Section 222 of the Investment Advisers Act1-16
            • [A][2][a][ii] : NASAA’s Initiative to Provide Relief to Advisers Registered in Multiple States1-17
      • [B] : Registration Issues1-17
        • [B][1] : Registering the Adviser1-18
          • [B][1][a] : De Minimis Exception from Registration1-18
        • [B][2] : Registration of Advisory Personnel1-18
        • [B][3] : Registration of Branch Offices1-19
      • [C] : Substantive Regulation1-19
        • [C][1] : Conduct Regulation1-19
        • [C][2] : Net Capital Requirements1-19
        • [C][3] : Safekeeping of Assets1-20
          • [C][3][a] : Custody1-20
          • [C][3][b] : Bonding Requirements1-20
      • [D] : Record-Keeping Requirements and Inspections1-20
        • [D][1] : Record Keeping1-20
        • [D][2] : Inspections1-21
    • § 1:4.3 : State Regulation of SEC-Registered Advisers and Their Personnel1-21
      • [A] : Notice Filings by SEC-Registered Advisers1-21
      • [B] : Registration of Advisory Personnel1-22
        • [B][1] : Exam Requirement1-22
          • [B][1][a] : State Uniformity1-23
        • [B][2] : Application Process1-23
    • § 1:4.4 : Investment Adviser Registration Depository1-24
  • § 1:5 : The Investment Company Act of 19401-24
  • § 1:6 : The Employee Retirement Income Security Act of 19741-27
  • § 1:7 : Financial Industry Regulatory Authority (FINRA)1-30
  • § 1:8 : Private Associations1-30
  • § 1:9 : A Note About Citations1-31
Chapter 2: Investment Adviser Status Questions; and Appendix 2A
  • § 2:1 : Introduction2-2
  • § 2:2 : Definition Under the Investment Advisers Act2-4
    • § 2:2.1 : “Engaging in the Business of Advising Others”2-5
      • [A] : Holding Out2-5
      • [B] : Special or Additional Compensation2-6
      • [C] : Specificity and Regularity of Investment Advice2-6
      • [D] : Advising Others2-7
    • § 2:2.2 : Providing Advisory Services Concerning Securities2-8
      • [A] : Concerning Securities2-8
      • [B] : Judgmental2-9
    • § 2:2.3 : Advisory Services Provided for “Compensation”2-10
  • § 2:3 : Entities Excluded from the Definition2-11
    • § 2:3.1 : Banks and Bank Holding Companies2-11
      • [A] : Banks and Bank Holding Companies That Act As Advisers to a Registered Investment Company2-12
    • § 2:3.2 : Lawyers, Accountants, Engineers, and Teachers2-12
    • § 2:3.3 : Broker-Dealers2-14
    • § 2:3.4 : Publishers and Authors2-14
      • [A] : Generally2-14
      • [B] : Investment Website Operators2-17
    • § 2:3.5 : U.S. Government Obligations2-18
    • § 2:3.6 : Family Offices2-19
    • § 2:3.7 : Parties Excluded by SEC Regulation or Order2-19
  • § 2:4 : Exemptions from Registration2-20
    • § 2:4.1 : The Intrastate Exemption (Section 203(b)(1))2-20
    • § 2:4.2 : The Insurance Company Exemption (Section 203(b)(2))2-21
    • § 2:4.3 : Historical Note: The Defunct Private Investment Adviser Exemption2-21
    • § 2:4.4 : Foreign Private Adviser Exemption (Section 203(b)(3) and Rule 202(a)(30)-1)2-24
    • § 2:4.5 : Exemption for Small Business Investment Company Advisers (Section 203(b)(7))2-26
    • § 2:4.6 : Venture Capital Fund Adviser Exemption (Section 203(l) and Rule 203(l)-1)2-26
    • § 2:4.7 : Small Private Fund Adviser Exemption2-28
      • [A] : Exemption Under the Investment Advisers Act (Section 203(m) and Rule 203(m)-1)2-28
      • [B] : NASAA’s Proposed Model Rule2-29
    • § 2:4.8 : Charitable Organization Exemption (Section 203(b)(4))2-29
    • § 2:4.9 : Exemption for Commodity Trading Adviser (Section 203(b)(6))2-29
  • § 2:5 : Specific Contexts2-30
    • § 2:5.1 : Financial Planners2-30
    • § 2:5.2 : General Partner in a Limited Partnership2-31
    • § 2:5.3 : Affiliates of a Registered Investment Adviser2-32
      • [A] : Insurance Companies2-33
      • [B] : The Richard Ellis No-Action Letter2-35
      • [C] : Foreign Advisers2-36
      • [D] : Special Purpose Vehicles2-38
    • § 2:5.4 : Real Estate Advisers to Pension Plans2-38
    • § 2:5.5 : Financial Advisors to Municipal Issuers2-39
      • [A] : Municipal Advisor Rule2-42
  • Appendix 2A : The Defunct Private Investment Adviser ExemptionApp. 2A-1
Chapter 2A: Broker-Dealer Status Issues Under the Advisers Act
  • § 2A:1 : Introduction—the Broker-Dealer Exclusion Under the Advisers Act2A-2
    • § 2A:1.1 : Elements of the Broker-Dealer Exclusion2A-6
      • [A] : Solely Incidental2A-6
        • [A][1] : 2005 Rulemaking—“Original” Rule 202(a)(11)-12A-7
          • [A][1][a] : Circumstances Under Which Services Were Not Incidental Under “Original” Rule 202(a)(11)-12A-7
        • [A][2] : FPA Decision—Original Rule 202(a)(11)-1 Vacated2A-9
        • [A][3] : 2007 Rulemaking—“New” Proposed Rule 202(a)(11)-12A-9
      • [B] : Special Compensation2A-10
        • [B][1] : 2005 Rulemaking—“Original” Rule 202(a)(11)-12A-12
        • [B][2] : FPA Decision2A-12
        • [B][3] : 2007 Rulemaking—Proposed “New” Rule 202(a)(11)-12A-12
    • § 2A:1.2 : Fee-Based Brokerage Programs2A-13
    • § 2A:1.3 : Discount Brokerage Programs (Including Electronic Trading Programs)2A-14
    • § 2A:1.4 : Dual Registrants2A-14
    • § 2A:1.5 : Recent Regulatory Developments2A-15
      • [A] : The RAND Report2A-15
      • [B] : Calls for Harmonization of Broker-Dealer and Adviser Regulation2A-16
        • [B][1] : Background2A-16
        • [B][2] : The 2009 Investor Protection Act2A-17
          • [B][2][a] : Generally2A-17
          • [B][2][b] : Broker-Dealer Fiduciary Duty2A-17
          • [B][2][c] : Adviser Fiduciary Duty2A-17
          • [B][2][d] : Compensation Practices2A-18
          • [B][2][e] : SRO for Investment Advisers2A-18
        • [B][3] : The House Proposal2A-18
        • [B][4] : Senate Banking Committee Proposal2A-19
        • [B][5] : Dodd-Frank Wall Street Reform and Consumer Protection Act of 20102A-19
          • [B][5][a] : The SEC Study2A-20
          • [B][5][b] : Review of Comments Submitted2A-21
          • [B][5][c] : SEC Report2A-22
        • [B][6] : Practical Implications to Consider—Potential Harmonized Standard of Care2A-26
  • § 2A:2 : Registered Representatives2A-27
    • § 2A:2.1 : Ability of Registered Representatives to Rely on Broker-Dealer Exclusion2A-27
    • § 2A:2.2 : Registered Representatives Engaging in the Advisory Business2A-28
      • [A] : Brokerage Firm Duty to Supervise Representative Advisory Activity2A-28
Chapter 3: The Jurisdictional Divide Between the SEC and the States
  • § 3:1 : Introduction3-2
  • § 3:2 : Determining Whether an Adviser Is Subject to SEC Registration or State Registration3-3
    • § 3:2.1 : Buffer for Mid-Sized Advisers3-7
    • § 3:2.2 : The “Regulatory Assets Under Management” Test3-7
      • [A] : Securities Portfolio3-7
      • [B] : Continuous and Regular Supervisory or Management Services3-8
    • § 3:2.3 : Advisers Exempt from the Prohibition on SEC Registration3-9
      • [A] : Pension Consultants; Affiliates of SEC Advisers; and Newly Formed Advisers Expecting to Be Eligible for SEC Registration3-10
      • [B] : Multi-State Investment Advisers3-11
      • [C] : Internet Investment Advisers3-11
    • § 3:2.4 : Annual Filing3-12
  • § 3:3 : What Authority Do States Have over SEC-Registered Advisers?3-12
  • § 3:4 : What Authority Does the SEC Have with Respect to State-Registered Advisers?3-13
  • § 3:5 : To Which State Law Is a State-Registered Adviser Subject?3-14
  • § 3:6 : Are Individuals Working for SEC-Registered Advisers Subject to State Regulation?3-15
    • § 3:6.1 : Investment Adviser Representative3-16
      • [A] : Definition of Investment Adviser Representative3-16
        • [A][1] : Supervised Person3-16
        • [A][2] : The Ten-Percent Test3-16
      • [B] : Place of Business3-17
    • § 3:6.2 : Solicitors to SEC-Registered Advisers3-18
  • § 3:7 : Are Individuals Who Work for State-Registered Advisers Subject to State Regulation?3-19
  • § 3:8 : Are Individuals Who Work for State-Registered Advisers Subject to SEC Regulation?3-19
Chapter 4: Registration and Disclosure: The Form ADV
  • § 4:1 : Introduction4-2
  • § 4:2 : ADV Part 1A4-4
    • § 4:2.1 : Adviser Background Information (Items 1–4)4-4
    • § 4:2.2 : The Adviser’s Business (Items 5–6)4-5
      • [A] : Regulatory Assets Under Management4-5
      • [B] : Other Business Activities4-5
    • § 4:2.3 : Financial Industry Affiliation and Private Fund Reporting (Item 7)4-6
    • § 4:2.4 : Participation or Interest in Client Transactions (Item 8)4-8
    • § 4:2.5 : Custody (Item 9)4-8
    • § 4:2.6 : Persons Controlling the Adviser (Item 10)4-9
    • § 4:2.7 : Disciplinary History (Item 11)4-9
    • § 4:2.8 : Small Business (Item 12)4-9
  • § 4:3 : Form ADV Part 1B: State-Registered Advisers4-10
  • § 4:4 : Client Disclosure: Form ADV Part 24-10
    • § 4:4.1 : Part 2A: The Brochure4-10
      • [A] : Item 1: Cover Page4-10
      • [B] : Item 2: Material Changes4-11
      • [C] : Item 3: Table of Contents4-11
      • [D] : Item 4: Advisory Business4-11
      • [E] : Item 5: Fees and Compensation4-11
      • [F] : Item 6: Performance-Based Fees and Side-by-Side Management4-12
      • [G] : Item 7: Types of Clients4-12
      • [H] : Item 8: Methods of Analysis, Investment Strategies and Risk of Loss4-12
      • [I] : Item 9: Disciplinary Information4-13
      • [J] : Item 10: Other Financial Industry Activities and Affiliations4-13
      • [K] : Item 11: Code of Ethics, Participation or Interest in Client Transactions and Personal Trading4-13
      • [L] : Item 12: Brokerage Practices4-14
      • [M] : Item 13: Review of Accounts4-14
      • [N] : Item 14: Client Referrals and Other Compensation4-14
      • [O] : Item 15: Custody4-14
      • [P] : Item 16: Investment Discretion4-15
      • [Q] : Item 17: Voting Client Securities4-15
      • [R] : Item 18: Financial Information4-15
      • [S] : Item 19: Requirements for State-Registered Advisers4-15
    • § 4:4.2 : Part 2A: Appendix 1—The Wrap-Fee Program Brochure4-16
    • § 4:4.3 : Part 2B: The Brochure Supplement4-16
      • [A] : Generally4-16
      • [B] : Covered Advisory Personnel4-16
      • [C] : Required Items4-16
    • § 4:4.4 : Delivery Requirements4-18
      • [A] : Brochure4-18
        • [A][1] : Initial Delivery4-18
        • [A][2] : Annual Delivery4-18
        • [A][3] : Interim Delivery4-19
        • [A][4] : Flexibility Provided with Respect to Sub-Advisory Programs4-19
      • [B] : Brochure Supplement4-20
  • § 4:5 : Financial and Disciplinary Information4-20
    • § 4:5.1 : 2010 Amendments4-20
    • § 4:5.2 : Prior to the 2010 ADV Amendments: Rule 206(4)-44-20
  • § 4:6 : SEC Approval of the Adviser’s Form ADV4-22
  • § 4:7 : Duty to Maintain Current Form ADV4-23
  • § 4:8 : Termination of Registration4-24
  • § 4:9 : Electronic Filing Requirement—The Investment Adviser Registration Depository4-24
Chapter 4A: Form of Organization
  • § 4A.1 : Introduction4A-2
  • § 4A.2 : Whether to Form a Legal Entity4A-2
    • § 4A.2.1 : Sole Proprietorship4A-2
      • [A] : Advantages of a Sole Proprietorship4A-3
      • [B] : Disadvantages of a Sole Proprietorship4A-3
    • § 4A.2.2 : Legal Entity4A-3
  • § 4A.3 : Types of Legal Entities4A-4
    • § 4A.3.1 : Corporation4A-4
      • [A] : C Corporation4A-4
        • [A][1] : Advantages of a C Corporation4A-4
        • [A][2] : Disadvantages of a C Corporation4A-5
      • [B] : S Corporation4A-5
        • [B][1] : Advantages of an S Corporation4A-5
        • [B][2] : Disadvantages of an S Corporation4A-5
      • [C] : Shareholder Liability4A-6
    • § 4A.3.2 : Limited Liability Company4A-6
    • § 4A.3.3 : Partnership4A-7
      • [A] : General Partnership versus Limited Partnership4A-7
      • [B] : Limited Liability Partnership4A-8
    • § 4A.3.4 : Business Trust4A-9
  • § 4A.4 : Selecting the Form of Entity4A-9
    • § 4A.4.1 : Choosing the Best Form of Entity4A-9
    • § 4A.4.2 : Number of Entities4A-10
  • § 4A.5 : Naming the Business4A-11
    • § 4A.5.1 : Name Availability4A-11
    • § 4A.5.2 : Reserving the Name4A-12
  • § 4A.6 : Where to Form the Entity4A-12
    • § 4A.6.1 : Advantages of Home State4A-13
    • § 4A.6.2 : Advantages of Delaware4A-13
    • § 4A.6.3 : Organizing the Entity in a State Other Than Its Location4A-13
  • § 4A.7 : Setting Up the Entity4A-14
    • § 4A.7.1 : Setting Up a Corporation4A-14
    • § 4A.7.2 : Setting Up an LLC4A-15
    • § 4A.7.3 : Setting Up a Partnership4A-15
    • § 4A.7.4 : Setting Up a Business Trust4A-16
  • § 4A.8 : Employer Identification Number4A-16
  • § 4A.9 : Governing Agreement4A-16
  • § 4A.10 : Business Formalities4A-17
  • § 4A.11 : Other Considerations4A-18
Chapter 5: Referrals
  • § 5.1 : Introduction5-2
  • § 5.2 : Rule 206(4)-35-2
    • § 5.2.1 : Scope of the Rule5-2
      • [A] : Generally5-2
      • [B] : Solicitor versus Adviser5-3
      • [C] : What Is Solicitation Activity?5-4
        • [C][1] : Generally5-4
        • [C][2] : Collective Investment Vehicles5-4
      • [D] : When Is a Fee Deemed to Be Paid to Cover Solicitation Activity?5-5
    • § 5.2.2 : Qualification Requirements5-5
    • § 5.2.3 : Written Agreement Requirement5-6
    • § 5.2.4 : Disclosure and Other Additional Requirements5-6
      • [A] : Generally5-6
      • [B] : Third-Party Solicitation Arrangements5-7
      • [C] : Affiliated Solicitors5-8
      • [D] : Impersonal Advisory Services5-8
  • § 5.3 : Status of the Solicitor5-8
    • § 5.3.1 : Registration Under the Investment Advisers Act5-8
    • § 5.3.2 : Registration and Licensing Under State Law5-9
      • [A] : Solicitor to an SEC-Registered Adviser5-9
      • [B] : Solicitor to a State-Registered Adviser5-9
  • § 5.4 : Duty to Supervise Solicitation Activity5-10
Chapter 6: Advertising by Investment Advisers
  • § 6.1 : Introduction6-2
  • § 6.2 : Investment Advisers Act Rule 206(4)-16-2
    • § 6.2.1 : Definition of “Advertisement”6-2
    • § 6.2.2 : The Rule’s Framework6-4
    • § 6.2.3 : Testimonials6-5
    • § 6.2.4 : Past Specific Recommendations6-7
      • [A] : SEC Staff Interpretative Positions6-7
    • § 6.2.5 : Automatic Selection Devices6-9
    • § 6.2.6 : Free Services6-9
    • § 6.2.7 : Catchall Category6-9
  • § 6.3 : Performance Advertising6-9
    • § 6.3.1 : Public Communications of Model Performance6-11
    • § 6.3.2 : Public Communications of Actual Performance6-12
      • [A] : Which of the Adviser’s Accounts Must Be Included in Determining Actual Performance6-12
      • [B] : Conditions Imposed on Actual Performance6-13
    • § 6.3.3 : One-on-One Presentations of Model and Actual Performance6-14
  • § 6.4 : SEC Enforcement Focus on Misleading Advertisements6-15
  • § 6.5 : Investment Company Advertising6-17
    • § 6.5.1 : Rule 482 Advertisements6-18
    • § 6.5.2 : Generic Advertisements6-18
    • § 6.5.3 : Supplemental Sales Literature6-18
    • § 6.5.4 : NASD Rules6-18
Chapter 7: Practical Considerations for Performance Advertising by Advisers
  • § 7:1 : Introduction7-2
  • § 7:2 : Performance Advertising7-4
    • § 7:2.1 : General Requirements7-4
    • § 7:2.2 : Model Performance7-6
    • § 7:2.3 : Hypothetical Backtested Performance7-8
    • § 7:2.4 : Gross-of-Fee and Net-of-Fee Performance7-10
      • [A] : Net-of-Fee Performance7-10
      • [B] : Gross-of-Fee Performance7-11
        • [B][1] : One-on-One Presentations7-11
        • [B][2] : Consultants7-11
        • [B][3] : Side-by-Side Gross and Net-of-Fee Performance7-12
    • § 7:2.5 : Model Fees7-12
    • § 7:2.6 : Portability7-13
    • § 7:2.7 : Record-Keeping7-15
    • § 7:2.8 : Advertising Policies and Procedures7-18
    • § 7:2.9 : Recent SEC Focus on Performance7-20
  • § 7:3 : Global Investment Performance Standards (GIPS®)7-24
    • § 7:3.1 : General Background7-25
      • [A] : Overview of the Standards7-25
      • [B] : Interpretation of the Standards7-26
      • [C] : Enforcement of the Standards7-27
    • § 7:3.2 : Fundamentals of Compliance7-28
      • [A] : Definition of the Firm7-29
        • [A][1] : General Guidelines7-29
        • [A][2] : Redefinition of the Firm7-30
        • [A][3] : Total Firm Assets7-31
        • [A][4] : Alternative Investment Valuation7-32
        • [A][5] : Sub-Advisors7-33
      • [B] : GIPS Policies and Procedures7-34
      • [C] : Claim of Compliance7-34
        • [C][1] : Notification Requirement7-35
      • [D] : Firm Fundamental Responsibilities7-36
    • § 7:3.3 : Input Data7-38
    • § 7:3.4 : Calculation Methodology7-39
    • § 7:3.5 : Constructing Composites7-41
      • [A] : Carve-Outs7-45
        • [A][1] : General Requirements7-45
        • [A][2] : Cash Allocation Requirements7-47
        • [A][3] : Required Disclosures7-48
      • [B] : Side Pockets7-48
    • § 7:3.6 : Disclosures7-50
      • [A] : Current Disclosure Requirements7-50
      • [B] : Proposed Guidance Regarding Pooled Funds7-53
    • § 7:3.7 : Presentation and Reporting7-54
      • [A] : Performance Record Portability7-56
      • [B] : Supplemental Information7-60
    • § 7:3.8 : Advertising Guidelines7-62
    • § 7:3.9 : Verification7-64
Chapter 8: An Investment Adviser’s Fiduciary Duty; and Appendix 8A
  • § 8:1 : Introduction8-2
  • § 8:2 : Fundamental Nature of the Adviser-Client Relationship8-2
  • § 8:3 : Legal Basis for An Adviser’s Fiduciary Duties8-3
    • § 8:3.1 : Common Law8-3
    • § 8:3.2 : Federal Statutory Law8-4
      • [A] : Investment Advisers Act Section 2068-4
      • [B] : Dodd-Frank Act8-7
        • [B][1] : Advisers8-7
        • [B][2] : Municipal Advisors8-7
    • § 8:3.3 : Other Provisions Impacting an Adviser’s Fiduciary Duty8-9
      • [A] : Investment Company Act Sections 36(a) and 36(b)8-10
      • [B] : State Blue Sky Laws8-11
      • [C] : ERISA8-12
      • [D] : Broker-Dealer Laws8-13
  • § 8:4 : Basic Fiduciary Duties an Adviser Owes to Its Clients8-14
  • § 8:5 : How the Basic Fiduciary Duties Apply to a Particular Adviser8-15
  • § 8:6 : Altering or Waiving an Adviser’s Fiduciary Duties8-16
  • § 8:7 : Specific Examples of an Adviser’s Fiduciary Duties8-19
    • § 8:7.1 : Duty of Care8-20
    • § 8:7.2 : Duty of Loyalty8-24
    • § 8:7.3 : Duty of Obedience8-33
    • § 8:7.4 : Duty to Act in Good Faith8-34
    • § 8:7.5 : Duty of Disclosure8-36
  • § 8:8 : Emerging Fiduciary Issues8-37
    • § 8:8.1 : Duty to Oversee Sub-Advisers and Other Service Providers8-38
    • § 8:8.2 : Duty to Vote Proxies8-40
    • § 8:8.3 : Duty to Assess a Client’s Mental Competence8-42
    • § 8:8.4 : Duty to Protect Client Assets from Business Disruptions8-45
    • § 8:8.5 : Robo-Advisers and Fiduciary Duty8-47
  • § 8:9 : Standard of Conduct Applicable to an Adviser’s Fiduciary Duty8-49
    • § 8:9.1 : Negligence Versus Gross Negligence8-49
    • § 8:9.2 : State of Mind; Scienter; Willfulness8-54
  • § 8:10 : Ensuring Discharge of an Adviser’s Fiduciary Duty8-56
    • § 8:10.1 : Policies and Procedures Addressing Fiduciary Duties8-56
    • § 8:10.2 : Training of Personnel on Fiduciary Duty8-57
  • Appendix 8A : Sample Training Module: Hypothetical Fiduciary Duty ScenariosApp. 8A-1
Chapter 8A: Broker-Dealer and Adviser Uniform Standard of Care
  • § 8A:1 : Introduction8A-2
  • § 8A:2 : Current Legal Framework8A-2
    • § 8A:2.1 : Current Framework for Standard of Care8A-2
    • § 8A:2.2 : Duty of Fair Dealing (the “Shingle Theory”)8A-4
    • § 8A:2.3 : Duty to Observe Just and Equitable Principles of Trade8A-5
    • § 8A:2.4 : Situations Where Broker-Dealers Are Bound by Fiduciary Duty8A-7
      • [A] : Discretionary Accounts8A-7
      • [B] : Certain Relationships of Trust8A-8
      • [C] : Dual Registrants8A-8
      • [D] : Muni-Advisors8A-9
      • [E] : ERISA Fiduciaries8A-9
  • § 8A:3 : Chronology—Regulatory Response to Convergence of Broker-Dealer and Advisory Services8A-10
  • § 8A:4 : Treatment of Broker-Dealers Under the Investment Advisers Act8A-13
    • § 8A:4.1 : Generally8A-13
    • § 8A:4.2 : RAND Report8A-13
  • § 8A:5 : Harmonizing the Broker-Dealer and Investment Adviser Standard of Care8A-14
  • § 8A:6 : Legislative Proposals8A-15
    • § 8A:6.1 : Investor Protection Act of 20098A-15
    • § 8A:6.2 : House Proposal8A-16
    • § 8A:6.3 : Senate Banking Committee Proposal8A-17
    • § 8A:6.4 : Dodd-Frank Wall Street Reform and Consumer Protection Act of 20108A-17
      • [A] : The SEC Study8A-19
      • [B] : SEC’s Request for Cost/Benefit Data8A-23
        • [B][1] : Assumptions About a Possible Uniform Fiduciary Standard8A-24
        • [B][2] : Possible Uniform Fiduciary Standard8A-25
        • [B][3] : Possible Alternatives to a Uniform Standard8A-26
        • [B][4] : Key Industry Concerns8A-26
        • [B][5] : Information About Changes Made in Response to 2007 Wrap Fee Account Rule Case8A-27
        • [B][6] : Information About Further Regulatory Harmonization8A-27
  • § 8A:7 : Practical Implications to Consider8A-28
  • § 8A:8 : SEC Activity: 2013–20168A-29
  • § 8A:9 : Other Initiatives8A-30
    • § 8A:9.1 : Department of Labor’s Fiduciary Duty Rule8A-30
    • § 8A:9.2 : The GAO’s Financial Planner Study8A-32
Chapter 9: The Advisory Contract
  • § 9.1 : Introduction9-1
  • § 9.2 : Fees9-2
  • § 9.3 : Scope of Services9-3
  • § 9.4 : Conflicts of Interest9-4
  • § 9.5 : Administrative Issues9-4
  • § 9.6 : Liability9-5
  • § 9.7 : Controversies and Dispute Resolution9-5
  • § 9.8 : Representations and Acknowledgments9-7
  • § 9.9 : Terminating, Assigning, and Amending9-7
Chapter 10: Investment Adviser Compensation
  • § 10:1 : Introduction10-2
  • § 10:2 : Disclosure Requirements Under the Investment Advisers Act10-3
  • § 10:3 : SEC Staff Positions10-3
    • § 10:3.1 : Reasonableness of the Fee Amount10-4
    • § 10:3.2 : Percentage Guidelines10-4
    • § 10:3.3 : Fees Received in Connection with Affiliated Mutual Funds10-4
  • § 10:4 : Imposition of Fees Upon the Termination of an Advisory Relationship10-5
  • § 10:5 : Performance Fees10-6
    • § 10:5.1 : Relevant Statutory and Rule Language10-7
    • § 10:5.2 : Types of Compensation Arrangements Falling Within Performance Fee Prohibition10-16
      • [A] : Direct Incentive Fees10-16
      • [B] : Contingent Fee Arrangements10-16
        • [B][1] : Advisory Fee Refunds and Rebates10-17
      • [C] : Mutual Fund Fee Arrangements10-18
    • § 10:5.3 : Exceptions10-18
      • [A] : Exception for Asset-Based Fees10-18
      • [B] : Exception for Fulcrum Fees10-19
        • [B][1] : Appropriateness of Index10-20
        • [B][2] : Period over Which Performance Is Measured10-21
      • [C] : Rule 205-3 Exception for Wealthy Clients10-21
        • [C][1] : 1998 Amendments10-22
        • [C][2] : Threshold Adjustments10-23
          • [C][2][a] : 2016 Threshold Adjustment10-24
        • [C][3] : Look-Through Provision10-25
        • [C][4] : Rule 205-3 Applicability to Collective Trust Funds and Insurance Company Separate Accounts Under Investment Company Act Section 3(c)(11)10-25
      • [D] : Qualified Purchaser Fund10-26
      • [E] : Foreign Clients10-26
  • § 10:6 : Performance Fees Under ERISA10-26
  • § 10:7 : Performance Fees: Dually Registered Broker-Dealers/Investment Advisers10-27
Chapter 11: Custody and Protection of Customer Accounts
  • § 11:1 : Introduction11-3
  • § 11:2 : Text of Investment Advisers Act Rule 206(4)-211-4
  • § 11:3 : Definition of Terms11-11
    • § 11:3.1 : Custody11-11
    • § 11:3.2 : Independent Representative11-12
    • § 11:3.3 : Operational Independence11-12
    • § 11:3.4 : Qualified Custodian11-13
  • § 11:4 : Arrangements Where an Adviser Has Custody11-13
    • § 11:4.1 : Determining Custody Prior to the 2003 and 2010 Amendments to Rule 206(4)-211-13
      • [A] : Deduction of Advisory Fees11-14
      • [B] : Affiliates11-14
    • § 11:4.2 : Current Definition of “Custody” (As Defined Under the 2003 and 2010 Amendments)11-15
      • [A] : Possession of Client Funds or Securities11-15
        • [A][1] : Assets That Are Not Funds or Securities11-16
        • [A][2] : No Compensation Received by Adviser11-17
      • [B] : Authority to Withdraw Funds or Securities Maintained with a Custodian11-17
        • [B][1] : Deduction of Advisory Fees11-17
        • [B][2] : Standing Letters of Authorization (SLOAs)11-17
        • [B][3] : First-Party/Client Account Transfers11-18
        • [B][4] : Inadvertent Custody by Virtue of Custodial Arrangement11-19
      • [C] : Legal Ownership—Pooled Investment Vehicles and Trusts11-20
      • [D] : Affiliates of the Adviser11-20
      • [E] : Common Scenarios11-21
  • § 11:5 : Rule 206(4)-2 Controls11-22
    • § 11:5.1 : Requirements Prior to the 2003 Amendments11-23
    • § 11:5.2 : Current Requirements (Requirements Imposed Pursuant to the 2003 and 2010 Amendments)11-24
      • [A] : Assets Must Be Held by a Qualified Custodian11-24
        • [A][1] : Exception for Mutual Fund Shares Purchased Directly from Transfer Agent11-25
        • [A][2] : Privately Offered Securities11-25
          • § [A][2][i] : Private Stock Certificates11-25
      • [B] : Notice11-26
      • [C] : Delivery of Account Statements to Clients11-26
      • [D] : Surprise Audit Requirement11-27
        • [D][1] : Hiring of an Independent Public Accountant11-27
        • [D][2] : Contents of Written Agreement with an Independent Public Accountant11-28
        • [D][3] : Conducting the Surprise Examination11-28
      • [E] : Internal Control Report11-29
        • [E][1] : Form of the Internal Control Report11-29
      • [F] : Exceptions11-30
        • [F][1] : Advisers to Limited Partnerships11-30
        • [F][2] : Advisers to Registered Investment Companies11-31
    • § 11:5.3 : Treatment of Dually Registered Investment Advisers/Broker-Dealers Under the Rule11-31
  • § 11:6 : Custody of Mutual Fund Assets11-31
  • § 11:7 : Custody As an SEC Exam Focus11-32
  • § 11:8 : GAO 2013 Study Costs Associated with the Custody Rule11-33
Chapter 12: Investment Restrictions
  • § 12.1 : Introduction12-1
  • § 12.2 : Establishment of Investor Guidelines12-2
    • § 12.2.1 : Generally12-2
    • § 12.2.2 : Enforcement Actions12-3
  • § 12.3 : Suitability Under the Advisers Act12-4
    • § 12.3.1 : Generally12-4
    • § 12.3.2 : Proposed Adviser Suitability Rule12-5
    • § 12.3.3 : Churning12-6
  • § 12.4 : Investment Restrictions Under the Investment Company Act12-6
    • § 12.4.1 : Generally12-6
    • § 12.4.2 : Investments in Other Investment Companies12-7
    • § 12.4.3 : Investing in Securities-Related Business12-9
    • § 12.4.4 : Liquidity12-10
    • § 12.4.5 : Diversification Requirements12-11
    • § 12.4.6 : Leveraged Investments12-11
  • § 12.5 : ERISA12-12
Chapter 13: Proxy Voting
  • § 13:1 : Introduction13-2
  • § 13:2 : Requirements Under the Investment Advisers Act: Rule 206(4)-613-3
    • § 13:2.1 : Written Policies and Procedures13-4
    • § 13:2.2 : Disclosures to Clients About How to Obtain Voting Information13-6
    • § 13:2.3 : Describe Policies and Procedures13-6
    • § 13:2.4 : Record Keeping13-6
  • § 13:3 : Requirements Under the Investment Company Act13-6
    • § 13:3.1 : Funds Covered Under the Rules13-6
    • § 13:3.2 : Disclosure of Proxy Voting Policies and Procedures13-7
      • [A] : Whose Policies and Procedures Are Required to Be Disclosed?13-7
      • [B] : What Type of Disclosure Is Required About the Policies and Procedures?13-7
    • § 13:3.3 : Disclosure of Actual Voting Records13-8
      • [A] : Mechanism for Disclosing Voting Record to SEC13-9
      • [B] : Mechanism for Disclosing Voting Record to Shareholders13-9
  • § 13:4 : DOL Interpretive Bulletin 2016-0113-10
Chapter 14: Privacy of Client Financial Information: An Overview
  • § 14.1 : Introduction14-2
  • § 14.2 : Scope of Coverage14-2
    • § 14.2.1 : Which Advisers Are Subject to Regulation S-P?14-2
    • § 14.2.2 : What Type of Information Is Covered?14-3
      • [A] : Personally Identifiable Financial Information14-3
    • § 14.2.3 : Which Advisory Clients Are Covered?14-3
      • [A] : Individuals14-3
      • [B] : Application to Institutions14-4
  • § 14.3 : Privacy and Opt-Out Notices14-4
    • § 14.3.1 : Requirement to Provide Initial Privacy Notice14-4
      • [A] : Who Is a Consumer?14-4
      • [B] : Who Is a Customer?14-4
    • § 14.3.2 : Requirement to Provide Annual Privacy Notice to Customer14-5
    • § 14.3.3 : Requirement to Provide Revised Notice14-5
    • § 14.3.4 : Information Required to Be Included in Privacy Notices14-5
    • § 14.3.5 : Manner of Delivery14-6
  • § 14.4 : Opt-Out Requirements14-6
    • § 14.4.1 : Form of Opt-Out Notice14-7
    • § 14.4.2 : Exercising the Right to Opt Out14-7
  • § 14.5 : Exceptions14-7
  • § 14.6 : Required Procedures14-8
    • § 14.6.1 : Safeguard Rule14-8
    • § 14.6.2 : Proper Disposal of Consumer Information14-9
    • § 14.6.3 : 2008 Rulemaking Proposal14-9
  • § 14.7 : Regulation S-AM14-10
Chapter 15: Practical Implications Regarding the Safeguarding of Customer Information
  • § 15:1 : Introduction15-3
  • § 15:2 : SEC Regulation S-P Safeguards Rule15-7
    • § 15:2.1 : Information Security Programs (ISPs)15-9
      • [A] : Generally15-9
      • [B] : Internal and External Risk Assessment15-10
      • [C] : Developing Safeguarding Policies15-11
      • [D] : Additional ISP Safeguards15-13
    • § 15:2.2 : Responding to Unauthorized Access or Use of Personal Information15-14
    • § 15:2.3 : Disposal of Personal Information15-14
    • § 15:2.4 : Record-Keeping15-15
    • § 15:2.5 : Additional Exception to Notice and Opt-Out Requirements—Limited Information Disclosure When Personnel Leave Their Firms15-15
    • § 15:2.6 : Status of Rule Making15-17
  • § 15:3 : FINRA Guidance15-17
    • § 15:3.1 : Registered Representatives Changing Firms: Regulatory Notice 07-3615-17
    • § 15:3.2 : FINRA Rules: Information Encryption Requirements: FINRA Rule 821015-18
    • § 15:3.3 : FINRA Rules: Business Continuity Plan: FINRA Rule 437015-19
  • § 15:4 : Investigations and Enforcement15-19
    • § 15:4.1 : Improper Recruiting Practices15-20
      • [A] : NEXT Financial Group, Inc.15-20
      • [B] : Woodbury Financial Services, Inc.15-22
    • § 15:4.2 : Unsecure Disposal of Client Records: J.P. Turner & Company, LLC15-22
    • § 15:4.3 : Insufficient Antivirus Protection: Commonwealth Equity Services, LLP15-23
    • § 15:4.4 : Fraudulent Use of Client information15-23
      • [A] : Sale of Information: SEC v. Mondschein & UNCI, Inc.15-23
      • [B] : Fraudulent Use of Information: Merriman Curhan Ford & Co.15-24
      • [C] : Improper Sharing of Confidential Customer Information—Tomlinson15-25
    • § 15:4.5 : Inadequate Server and Web Portal Security15-26
      • [A] : No Written Supervisory Procedures—LPL Financial Corp.15-26
      • [B] : Open Web Portal Access—D.A. Davidson & Co.15-27
      • [C] : Weak Access Controls—Lincoln Financial Securities Inc.15-27
      • [D] : Inadequate Firewall and Password Protection—Centaurus Financial.15-28
      • [E] : Failure to Encrypt Laptop—Sterne, Agee & Leach15-28
    • § 15:4.6 : Supervisors/Executives Accountable—GunnAllen Financial15-28
    • § 15:4.7 : Transmitting Information to Non-Affiliates—Jeffrey N. Lombardi15-29
    • § 15:4.8 : Failure to Safeguard Hard Copy Records—Hernan Chassy, Jr.15-29
    • § 15:4.9 : Failure to Update Written Supervisory Procedures—Patrick Walker15-30
  • § 15:5 : Red Flags Rules—Identity Theft Prevention Programs (Reg S-ID)15-30
  • § 15:6 : States’ Efforts to Safeguard Customer Information15-32
    • § 15:6.1 : Breach Notice Statutes15-32
    • § 15:6.2 : Security Freeze Laws15-33
    • § 15:6.3 : Social Security Number Protection Laws15-33
    • § 15:6.4 : Disposal of Personal Information Laws15-34
    • § 15:6.5 : Encryption Statutes/Rules15-34
  • § 15:7 : Implementing Policies and Procedures15-35
  • § 15:8 : Customer Self-Protection of Data15-36
  • § 15:9 : Safeguarding Examinations15-38
  • § 15:10 : Cybersecurity15-39
    • § 15:10.1 : OCIE Cybersecurity Initiative15-40
    • § 15:10.2 : Cybersecurity Frameworks15-40
      • [A] : NIST Framework15-40
      • [B] : ISO/IEC 27002 Standard15-41
      • [C] : SANS 20 Critical Security Controls15-42
    • § 15:10.3 : Cybersecurity Litigation Lessons15-43
      • [A] : Eli Lilly15-44
      • [B] : BJ’s Wholesale15-44
    • § 15:10.4 : Additional Cybersecurity Resources15-45
  • § 15:11 : Conclusion15-45
Chapter 15A: New Client Relationships; and Appendix 15A-A
  • § 15A.1 : Introduction15A-3
  • § 15A.2 : Solicitation of New Clients15A-3
    • § 15A.2.1 : Rule 206(4)-3: Cash Solicitation Rule15A-4
    • § 15A.2.2 : Permissible Use of Solicitors15A-4
    • § 15A.2.3 : Disclosure Requirements15A-6
      • [A] : Impersonal Advisory Services15A-6
      • [B] : Solicitor Affiliates15A-6
      • [C] : Third Parties15A-7
    • § 15A.2.4 : Application in Certain Unique Circumstances15A-7
    • § 15A.2.5 : Books and Records15A-8
    • § 15A.2.6 : Enforcement15A-8
    • § 15A.2.7 : Other Regulations Impacting Solicitors15A-8
  • § 15A.3 : Political Contributions by Certain Investment Advisers: “Pay-to-Play”15A-9
    • § 15A.3.1 : Rule 206(4)-5: The “Pay-to-Play” Rule15A-9
      • [A] : Prohibited Contributions15A-10
      • [B] : Payments to Third Parties15A-11
      • [C] : Prohibited Solicitation and Coordination15A-12
    • § 15A.3.2 : Exceptions and Exemptive Relief15A-13
    • § 15A.3.3 : Books and Records15A-14
    • § 15A.3.4 : State and Municipal Regulation15A-14
    • § 15A.3.5 : CFTC Regulation15A-15
    • § 15A.3.6 : Enforcement15A-15
  • § 15A.4 : Rule 204-3: The Brochure Rule15A-16
    • § 15A.4.1 : Required Information15A-17
      • [A] : Initial Delivery Requirements15A-17
      • [B] : Information to be Delivered Annually15A-18
    • § 15A.4.2 : Exceptions to Delivery Requirements15A-18
    • § 15A.4.3 : Electronic Delivery15A-19
    • § 15A.4.4 : Books and Records15A-19
  • § 15A.5 : CFTC Disclosure Obligations15A-19
    • § 15A.5.1 : CPO Disclosures15A-19
    • § 15A.5.2 : Exemptions from Disclosures15A-20
    • § 15A.5.3 : CTA Disclosures15A-21
    • § 15A.5.4 : Exemptions from Disclosures15A-21
  • § 15A.6 : Privacy of Client Information15A-22
    • § 15A.6.1 : Privacy Rules: Regulation S-P15A-22
      • [A] : Overview of Regulation S-P15A-22
      • [B] : Consumer Versus Customer15A-23
      • [C] : Notice and Opt-Out Rules15A-24
      • [D] : Content Requirements15A-25
      • [E] : Delivery Requirements15A-26
      • [F] : Model Privacy Form15A-27
      • [G] : Safeguard Rule15A-28
      • [H] : Disposal Rule15A-28
      • [I] : Enforcement15A-29
    • § 15A.6.2 : Affiliate Marketing: Regulation S-AM15A-30
    • § 15A.6.3 : Identity Theft Rules: Red Flags Rules15A-31
      • [A] : Overview of the Red Flags Rules15A-31
      • [B] : Financial Institutions and Creditors15A-32
      • [C] : Application to Investment Advisers15A-32
      • [D] : Covered Accounts15A-33
    • § 15A.6.4 : Compliance Obligations15A-34
      • [A] : Elements of a Program15A-34
      • [B] : Administration of a Program15A-35
      • [C] : Guidelines for a Program15A-36
  • § 15A.7 : Investment Advisory Contracts15A-36
    • § 15A.7.1 : Section 205(a) and Rule 202(a)(1)-1: The Advisory Contract15A-36
    • § 15A.7.2 : Restrictions on Compensation15A-38
      • [A] : General15A-38
      • [B] : Exceptions15A-38
      • [C] : Indemnification Provisions15A-40
    • § 15A.7.3 : Suggested Provisions15A-40
    • § 15A.7.4 : Side Letters15A-41
      • [A] : Conflicts of Interest15A-41
      • [B] : Disclosure15A-42
  • § 15A.8 : Voting Proxies15A-43
    • § 15A.8.1 : Rule 206(4)-6: Proxy Voting15A-43
    • § 15A.8.2 : Books and Records15A-44
  • § 15A.9 : Fiduciary Obligations15A-45
    • § 15A.9.1 : Generally15A-45
      • [A] : Conflicts of Interest15A-46
      • [B] : Principal or Agency Transactions15A-47
      • [C] : Directed Brokerage Arrangements15A-49
  • § 15A.10 : Rule 206(4)-2: Custody of Client Accounts15A-50
    • § 15A.10.1 : Surprise Examination Requirement15A-52
    • § 15A.10.2 : Heightened Requirements for Affiliate Custodians15A-52
    • § 15A.10.3 : Exceptions15A-53
    • § 15A.10.4 : Recordkeeping and Compliance Procedures15A-54
    • § 15A.10.5 : Enforcement15A-55
  • § 15A.11 : ERISA Considerations15A-56
    • § 15A.11.1 : Exemptions15A-56
      • [A] : “25 Percent Test”15A-56
      • [B] : Other Exemptions15A-57
    • § 15A.11.2 : Operating as an ERISA Fund15A-57
  • § 15A.12 : Anti-Money Laundering15A-58
    • § 15A.12.1 : Bank Secrecy Act15A-58
    • § 15A.12.2 : Criminal Money Laundering Laws15A-60
    • § 15A.12.3 : Best Practices: Optional AML Programs15A-60
      • [A] : Customer Identification Program15A-61
      • [B] : Subscription Agreement Representations15A-61
    • § 15A.12.4 : Reliance on Financial Institutions15A-62
  • § 15A.13 : Tax Considerations15A-63
  • Appendix 15A-A : Template: Client Onboarding InformationApp. 15A-A–1
Chapter 16: Selecting the Broker
  • § 16.1 : Introduction16-1
  • § 16.2 : Who Selects the Broker?16-1
  • § 16.3 : Duty of Best Execution16-2
  • § 16.4 : SEC Review of Best Execution16-3
    • § 16.4.1 : Internal Controls16-3
  • § 16.5 : Conflicts of Interest16-4
Chapter 17: Soft Dollars
  • § 17.1 : Introduction17-2
  • § 17.2 : Section 28(e)17-4
    • § 17.2.1 : Eligible Research17-6
      • [A] : Research17-6
      • [B] : Meetings17-7
      • [C] : Data and Software17-7
      • [D] : Research and Ratings17-7
      • [E] : Mass-Marketed Publications17-7
      • [F] : Tangible Products and Services17-7
      • [G] : Proxy Services17-7
    • § 17.2.2 : Eligible Brokerage17-8
  • § 17.3 : Mixed-Use Products17-9
  • § 17.4 : Third-Party Research17-11
  • § 17.5 : Types of Securities Transactions Falling Within the Safe Harbor17-11
    • § 17.5.1 : 2001 SEC Position Extending Section 28(e) to NASDAQ Trades17-12
  • § 17.6 : Special Considerations with Respect to Pension Plans17-12
  • § 17.7 : Special Considerations with Respect to Mutual Funds17-13
    • § 17.7.1 : Board Approval17-13
    • § 17.7.2 : Disclosure Obligations17-16
    • § 17.7.3 : Acquiring Items Outside Section 28(e)17-17
  • § 17.8 : Form ADV Disclosure17-17
  • § 17.9 : Compliance Obligations17-18
  • § 17.10 : Other SEC Initiatives17-19
    • § 17.10.1 : 1998 SEC Staff Report on Soft Dollar Practices17-19
    • § 17.10.2 : SEC Enforcement Activity17-19
      • [A] : Enforcement Cases Against Advisers17-19
      • [B] : Enforcement Cases Against Broker-Dealers17-20
Chapter 18: Affiliated Brokerage
  • § 18.1 : Introduction18-1
  • § 18.2 : Regulation Under Investment Advisers Act18-2
  • § 18.3 : Regulation Under Other Statutes18-2
Chapter 19: Trading Conflicts
  • § 19.1 : Introduction19-2
  • § 19.2 : The Regulation of Principal and Agency Cross-Transactions Under Section 206(3)19-3
    • § 19.2.1 : The Scope of Section 206(3)’s Coverage19-4
      • [A] : Whether Section 206(3) Reaches Affiliates of the Adviser?19-4
      • [B] : What Is the Meaning of Purchase or Sale of a Security?19-4
      • [C] : What Types of Principal Trades Are Subject to Section 206(3)?19-5
      • [D] : When Is an Entity Entitled to Rely on the Exception for a Broker-Dealer Not Acting As an Investment Adviser in Connection with a Transaction?19-6
      • [E] : When Is an Adviser Acting As a Broker in Effecting a Transaction?19-7
        • [E][1] : Cross-Trades Effected Through Independent Broker19-7
        • [E][2] : Cross-Trades Effected Through the Adviser19-7
    • § 19.2.2 : Effecting Principal and Agency Cross-Transactions Under Section 206(3): The Requirement of Informed Client Consent19-8
      • [A] : Required Disclosure19-8
      • [B] : Timing of Required Disclosure and Client Consent19-9
      • [C] : Frequency with Which Client Consent Must Be Obtained19-9
      • [D] : Ability of Client to Withhold Consent19-10
      • [E] : Means of Obtaining Consent19-10
  • § 19.3 : Requirements Under Other Regulations19-10
    • § 19.3.1 : Requirements Under the Investment Company Act19-10
      • [A] : Principal Trades19-10
      • [B] : Agency Trades19-11
    • § 19.3.2 : Requirements Under ERISA19-11
      • [A] : Principal Transactions19-11
      • [B] : Agency Cross-Transactions19-11
  • § 19.4 : Exemptive Rules Under the Investment Advisers Act19-12
    • § 19.4.1 : Rule 206(3)-2: Agency Cross-Transactions19-12
    • § 19.4.2 : Rule 206(3)-1: Impersonal Advisory Services19-13
    • § 19.4.3 : Temporary Rule 206(3)-3T19-13
  • § 19.5 : Aggregating Client Trades19-16
  • § 19.6 : SEC Review of Regulatory Standards of Care Applying to Broker-Dealers and Investment Advisers19-19
Chapter 20: Investment Adviser Trading Desk Activities
  • § 20:1 : Introduction20-2
  • § 20:2 : Identification and Monitoring of Conflicts20-3
  • § 20:3 : Managing the Conflicts20-4
    • § 20:3.1 : Allocation of Investment Opportunity20-4
      • [A] : Identifying the Conflicts20-4
      • [B] : Managing Trade Aggregation and Investment Opportunity Conflicts20-5
      • [C] : Side-By-Side Portfolio Management20-12
    • § 20:3.2 : Best Execution20-13
      • [A] : The Adviser’s Obligation20-13
      • [B] : Best Practices in Seeking Best Execution20-14
      • [C] : Choosing a Broker/Dealer20-15
      • [D] : Testing for Best Execution20-16
      • [E] : Use of Brokerage Committees20-17
      • [F] : Recordkeeping20-17
    • § 20:3.3 : Soft Dollars20-17
      • [A] : Background20-18
      • [B] : The 2006 Release—The Analytical Framework for Applying Section 28(e)20-19
        • [B][1] : Test 1: Does the Product or Service Fall Within the Specific Statutory Limits of Section 28(e)(3)(A), (B), or (C)?20-19
          • [B][1][a] : Research Services—The “Advice, Analyses and Reports” Test20-19
          • [B][1][b] : Market Research20-21
          • [B][1][c] : Mass-Marketed Publications20-22
          • [B][1][d] : Brokerage Services—The Temporal Test20-22
        • [B][2] : Test 2—The Lawful and Appropriate Assistance Test20-24
        • [B][3] : Test 3—The Cost Test20-24
          • [B][3][a] : Mixed-Use Items20-24
          • [B][3][b] : Third-Party Research and Commission Sharing Arrangements20-25
Chapter 21: Trading Errors
  • § 21.1 : Introduction21-1
  • § 21.2 : What Is a Trade Error?21-2
  • § 21.3 : Error Correction Policies and Procedures21-3
    • § 21.3.1 : What Should Be Included in Trade Error Polices and Procedures?21-4
    • § 21.3.2 : Should Polices and Procedures Be Disclosed?21-5
    • § 21.3.3 : When Should Errors Be Corrected?21-6
  • § 21.4 : Who Should Bear the Cost of Trade Errors?21-7
    • § 21.4.1 : Can Clients Absorb Losses Resulting from Errors?21-7
    • § 21.4.2 : Can Advisers Retain Gains Resulting from Errors?21-8
    • § 21.4.3 : Error Accounts21-9
  • § 21.5 : Can an Adviser Use Soft Dollars to Correct Errors?21-11
Chapter 22: Investment Adviser Compliance Programs
  • § 22:1 : Background22-2
    • § 22:1.1 : Text of Rule 206(4)-722-2
    • § 22:1.2 : Coverage22-3
  • § 22:2 : Adoption and Implementation of Written Policies and Procedures22-3
    • § 22:2.1 : Required Scope of Written Policies and Procedures22-3
    • § 22:2.2 : Format22-4
    • § 22:2.3 : Written Supervisory Procedures22-5
  • § 22:3 : Annual Review22-5
  • § 22:4 : Documenting and Reporting the Annual Review Findings22-6
    • § 22:4.1 : Practical Considerations Regarding Documentation of the Review’s Findings22-6
    • § 22:4.2 : Reporting Internally22-7
    • § 22:4.3 : Reporting to the SEC22-7
  • § 22:5 : Chief Compliance Officer22-8
  • § 22:6 : Record Keeping22-8
  • § 22:7 : SEC Enforcement Activity Related to Compliance Program Deficienc