New Year’s Resolutions for Registered Advisers: Update Your Compliance Manual

Investment adviser complianceThe Securities and Exchange Commission will be ramping up its enforcement activities in 2012, especially when it comes to registered investment advisers. As we noted in several posts last month, several firms were recently fined for failing to annually review the effectiveness of their compliance manuals.

Therefore, it is important for registered investment advisers to make their compliance manuals a priority for 2012. This is also true for managers of private equity and hedge funds who will be required to register as investment advisers with the SEC by March 30, 2012.

Specifically, advisers should be aware that the Advisers Act requires investment advisers to certain adopt policies and procedures, including the following:

  • Portfolio management processes, including allocation of investment opportunities among clients and consistency of portfolios with clients’ investment objectives, disclosures by the adviser, and applicable regulatory restrictions;
  • Trading practices, including procedures by which the adviser satisfies its best execution obligation, uses brokerage to obtain research and other services (“soft dollar arrangements”), and allocates aggregated trades among clients;
  • Proprietary trading of the adviser and personal trading activities of supervised persons;
  • The accuracy of disclosures made to investors, clients, and regulators, including in Form ADV, account statements and advertisements;
  • Safeguarding of client assets from conversion or inappropriate use by advisory personnel;
  • The accurate creation of required records and their maintenance in a manner that secures them from unauthorized use and protects them from untimely destruction;
  • Marketing advisory services, including the use of solicitors;
  • Processes to value client holdings and assess fees based on those valuations;
  • Safeguards for the privacy protection of client records and information; and
  • Business continuity plans.

What About “Off the Shelf” Compliance Manuals?

The SEC is also cracking down on firms for failing to tailor mass produced compliance manuals to the adviser’s specific business operations. While it is tempting to buy a “one size fits all” manual, advisers should resist this temptation.

First, the SEC does not like this approach and has sanctioned firms who use them. Second, you may create more unnecessary work for your compliance team since many provisions of the manual may not apply to your business. Therefore, its advisable to spend the time at the beginning and create a manual that matches your business operations.

How We Can Help Ensure Compliance

Of course, this post provides only a brief overview of the compliance issues facing advisers that manage private equity and hedge funds. Therefore, you should consult with experienced counsel to meet the new rules.

Eckerle Law offers a highest-quality and cost-effective alternative to the traditional law firm model for a wide variety of transactional and regulatory matters serving all your business law needs. Our experienced attorneys also provide a full range of compliance services for investment advisers, offering compliance tools that are tailored to fit the ever changing regulatory landscape as well as your business needs.

If your company would like to strengthen its business practices, please contact us today so we can leverage our experience to create real-life business and legal solutions to help your business thrive.