By Robert R. Boeche, Partner; Robert D. Conca, Partner; and Andrew Steiger, Associate Attorney of Shustak Reynolds & Partners, P.C. posted on Wednesday, November 9, 2022.
Each year registered investment advisers (“RIAs”) must undertake a range of compliance tasks and obligations. While tasks can vary dependent upon the operations and registrations of the firm, all RIAs should examine their compliance program no less than annually. Additionally, the calendar year of 2022 saw several new compliance rules take effect, especially for RIAs registered with the Securities and Exchange Commission (“SEC”), which have increased the need to review compliance programs and potentially increase the complexity of such reviews. While not a comprehensive list, what follows is an overview of certain items RIAs should consider as we near the end of the year.[i]
If you need consultation regarding your upcoming regulatory and filing deadlines, or how the new Marketing Rule may apply to your firm, we are ready to help.
Shustak Reynolds & Partners regularly advises investment advisory and broker-dealer firms on the impact of applicable state and federal rules.
Partners Bob Boeche and Bob Conca can be reached at the firm’s San Diego office at (619) 696-9500.
[i] Most RIAs use a Dec. 31st fiscal year end, and this article is written with that in mind. However, the list of requirements remains the same for RIAs with different fiscal year end dates.
[ii] The December 22, 2020, adopting press release of the SEC’s replacement to the Marketing Rule 206(4)-1 can be found, along with a fact sheet outlining the changes, here: https://www.sec.gov/news/press-release/2020-334
[iii] Last year, Shustak Reynolds & Partners put out a blog diving into this topic in more detail, which can be found here: https://shufirm.com/how-the-sec%E2%80%99s-new-marketing-rule-is-changing-the-landscape-for-solicitors
[iv] More information about the IARD renewal program can be found here: https://www.iard.com/renewal-program
[v] Most RIAs are already complying with the Impartial Conduct Standards as a matter of course, which include (1) giving prudent and loyal advice to the retirement investor, (2) receiving only reasonable compensation and performing best execution, and (3) making no misleading statements about transactions or other relevant matters. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/new-fiduciary-advice-exemption
[vi] Due to enforcement delays implemented by the DOL, this initial retrospective review period has shifted several times. The consensus is now that the initial retrospective review period must review activities from Jan 21, 2022, to December 31, 2022. Each subsequent review period will be for the full 12-month fiscal year. For more, see: https://www.dol.gov/newsroom/releases/ebsa/ebsa20211025
[vii] Earlier this year, Shustak Reynolds & Partners put out a blog diving into this topic in more detail, which can be found here: https://shufirm.com/requirements-of-new-prohibited-transaction-exemption-pte-2020-02
[viii] Federal Register, Vol. 85, No. 244; Friday, Dec 18, 2020; Rules and Regulations, p. 82838, located here: https://www.govinfo.gov/content/pkg/FR-2020-12-18/pdf/2020-27825.pdf
[ix] Self-correction procedures are described in DOL FAQ at Q20.
[x] “Prohibited Transactions” are defined under ERISA Section 406(a), and broadly speaking means those transactions that create a conflict of interest. The new PTE 2020-02 exemption defines a rollover recommendation from one retirement account to another to be a prohibited transaction, and these transactions produce significant revenue for Firms that serve retirement investors; see also DOL FAQ at Q21, and 29 CFR 2550.408b-2(e)(1).
[xi] Rule 206(4)-7(b): https://www.govinfo.gov/content/pkg/CFR-2007-title17-vol3/pdf/CFR-2007-title17-vol3-sec275-2064-7.pdf
[xii] Material updates or changes to disciplinary disclosures may also require an “other than annual” update filing.
[xiii] Note also that the SEC announced forthcoming updates to Form ADV in connection with the new Marketing Rule which will include new sections of ADV for RIAs to complete. For more information about ADV filing requirements, see: https://www.sec.gov/about/forms/formadv-instructions.pdf
[xv] Form D, General Instructions, page 5: https://www.sec.gov/about/forms/formd.pdf
[xvi] Form PF, General Instructions, page 6, question 9: https://www.sec.gov/files/formpf.pdf
[xvii] Form 13F, General Instructions, page 1, question 1:https://www.sec.gov/pdf/form13f.pdf; see also 17 CFR §§ 240.13h-1, 240.13d-101, and 240.13d-102.