Advisers are reminded the SEC’s annual compliance outreach program National Seminar will be held on January 30, 2014, at its headquarters in Washington, D.C. Investment adviser and investment company senior officers, including chief compliance officers (CCOs) are invited to register and attend.
This year’s agenda will likely include panel discussions with SEC staff from the Office of Compliance Inspections and Examinations (OCIE), Division of Investment Management, and Division of Enforcement’s Asset Management Unit and investment adviser personnel. The agenda’s topics will include SEC exam priorities in 2014, private fund advisers, registered investment companies, valuation, and the role of the CCO. Continue reading “Reminder: SEC National Compliance Outreach Program”
Investment advisers and broker-dealer should be aware that SEC through its Asset Management Unit has commenced an initiative aimed at shedding more light on revenue-sharing arrangements between investment advisers and brokers.
The SEC has announced that it will continue to focus enforcement and examination efforts on uncovering arrangements between advisers and broker-dealers where advisers receive undisclosed compensation and conceal such conflicts of interest from clients.
The Commission recently instituted a settled administrative proceeding against Focus Point Solutions and The H Group, two Portland, Oregon-based investment advisory firms, and their owner over their failure to disclose to clients a revenue-sharing agreement and other potential conflicts of interest.
The SEC’s investigation found that the two firms and their owner failed to disclose to customers that they were receiving revenue-sharing payments from a brokerage firm that managed a particular category of mutual funds being recommended to Focus Point’s clients. Since Focus Point received a percentage of every dollar that its clients invested in the mutual funds, there was an incentive to recommend these funds over other investment opportunities in order to generate additional revenue for the firm.
As part of the arrangement , the broker agreed to pay Focus Point for all client assets that Focus Point invested in certain mutual funds. In exchange, Focus Point agreed to provide certain custodial support services to the broker. The SEC found that the agreement created incentives for Focus Point to favor a particular category of mutual funds over other investments.
Focus Point also provided misleading information about its fee structure to trustees of a mutual fund Focus Point for whom was seeking approval to become the sub-adviser. During the sub-adviser to the fund hiring process, Focus Point told the trustees that Focus Point would not receive any compensation beyond its sub-advisory fee. This was not true. Unbeknownst to the trustees, Focus Point had an arrangement with the fund’s primary adviser whereby the primary adviser would compensate Focus Point.
As part of the SEC’s Order entered in the case, Focus Point, The H Group and its owner were censured and agreed to pay a combined $1.1 million to settle the case.