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Article
Publication date: 4 July 2016

Jonathan A. Lopez, Courtney J. Linn, Edward Eisert and Lauren Muldoon

To provide a summary and analysis of the Proposed Rulemaking published by the Financial Crimes Enforcement Network (FinCEN) on September 1, 2015, which proposes to subject…

Abstract

Purpose

To provide a summary and analysis of the Proposed Rulemaking published by the Financial Crimes Enforcement Network (FinCEN) on September 1, 2015, which proposes to subject investment advisers to certain requirements of the Bank Secrecy Act of 1970.

Design/methodology/approach

The article discusses the proposed expansion of Bank Secrecy Act regulations to include investment advisers, including the history behind the rulemaking, proposed definition of “investment adviser” under the Act, the comments received in response to the proposed rulemaking, and the potential implications of the rule, should it be finalized.

Findings

This article concludes that FinCEN, in cooperation with the Securities and Exchange Commission (SEC) and other agencies, is nearing completion of the proposed rule. Investment advisers that fall under the proposed definition of those subject to Bank Secrecy Act should prepare to implement anti-money laundering compliance programs.

Originality/value

This article contains valuable information about proposed regulations impacting investment advisers registered or required to be registered with the Securities and Exchange Commission.

Details

Journal of Investment Compliance, vol. 17 no. 2
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 26 April 2013

Aegis J. Frumento and Stephanie Korenman

The purpose of this paper is to introduce the concept of professionalism into the current discussion of the proper scope of regulation of investment advisers.

Abstract

Purpose

The purpose of this paper is to introduce the concept of professionalism into the current discussion of the proper scope of regulation of investment advisers.

Design/methodology/approach

The authors reviewed the scholarly literature on what constitutes a profession, the debates over the two bills introduced in Congress in 2012 concerning investment adviser regulation, and some of the studies that led up to those bills.

Findings

The authors concluded that professionalism could apply to some investment advisers, particularly financial planners, and that the development of such a profession should be encouraged. However, they found that such a profession would threaten the economic interests of broker‐dealers and their registered representatives, whose routine use of such titles as “financial advisor” or “investment consultant” has led to consumer confusion over the different roles of brokers and advisers. Therefore broker‐dealer interests favor more intense regulation of investment advisers by an SRO such as FINRA, presuming that would impair the development of a true profession of investment advisers.

Practical implications

This paper aims to ensure that the development of a true profession of investment advisers and/or financial planners is openly and fully debated if and when consideration of investment adviser regulation is reintroduced.

Originality/value

The role that professionalism can and should play in investment adviser regulation has not been previously discussed, even though broker‐dealer registered representatives routinely use confusingly professional‐sounding titles to compete against independent investment advisers.

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Article
Publication date: 1 March 1997

Marybeth Sorady

For the foreign investment adviser wishing to do business in the USA, the regulatory climate has never been more propitious. This paper describes the recently restructured…

Abstract

For the foreign investment adviser wishing to do business in the USA, the regulatory climate has never been more propitious. This paper describes the recently restructured framework of federal and state law and regulation applicable to non‐US advisers that provide investment advisory services to US clients, whether from abroad or through a US subsidiary or affiliate. For those advisers that will register either themselves or subsidiaries or affiliates as investment advisers in the US, the paper first describes the requirements of the Investment Advisers Act of 1940 (Advisers Act), rules thereunder and significant interpretations and discusses the SEC's recent enforcement priorities. It then discusses the scope of and limitations imposed under recent interpretations permitting non‐US advisers that register in the USA to comply with US restrictions only in connection with their US clients. Finally, the paper discusses other legal and regulatory provisions that apply if the adviser offers interests in a pooled investment vehicle (ie an investment company) in the USA.

Details

Journal of Financial Regulation and Compliance, vol. 5 no. 3
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 1 January 2005

Ricardo W. Davidovich

In the wake of the Securities and Exchange Commission’s (the “SEC”) adoption of new rule 203(b)(3)‐2 under the Investment Advisers Act of 1940, as amended (the “Advisers

Abstract

In the wake of the Securities and Exchange Commission’s (the “SEC”) adoption of new rule 203(b)(3)‐2 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), many investment advisers that provide advisory services to hedge funds, and that previously had benefited from an exemption from federal registration under the Advisers Act, now will find that they are no longer eligible for such exemption. They will have to become federally registered investment advisers. As a result, such advisers will find themselves subject to a variety of rules and regulations regarding various compliance matters. Significantly, for the first time these advisers also may be able to market their services

Details

Journal of Investment Compliance, vol. 5 no. 4
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 1 October 2006

F. Scott Thomas and John C. Jaye

The article seeks to outline the requirements under the Investment Company Act of 1940 (the “Investment Company Act”), the Investment Advisers Act of 1940 (the “Advisers

Abstract

Purpose

The article seeks to outline the requirements under the Investment Company Act of 1940 (the “Investment Company Act”), the Investment Advisers Act of 1940 (the “Advisers Act”) and related US Securities and Exchange Commission (the “SEC”) rules and interpretive guidance for structuring performance‐based fees for investment advisers and sub‐advisers to registered investment companies (or mutual funds).

Design/methodology/approach

The article discusses the appropriate structure and timing for performance fees and describes in detail how SEC standards for structuring performance fees have evolved over time. The article explains recent SEC enforcement actions against investment advisers for improperly structured performance fees, and notes that the use of performance fees has once again become a focus of SEC scrutiny.

Findings

The article concludes that, despite a common perception that performance fees create an effective incentive to improve fund performance by more closely aligning the interests of the adviser and fund shareholders than traditional fee arrangements, there is minimal empirical evidence proving that the use of performance fees translates into superior fund performance. Investment advisers who charge performance fees to mutual fund clients should consider reevaluating the structure and payment process for the performance fees in light of recent SEC scrutiny and enforcement actions, adviser compliance obligations under Rule 206(4)‐7 of the Advisers Act, and fund compliance obligations under Rule 38a‐1 of the Investment Company Act.

Originality/value

The article provides a concise overview of the regulatory requirements for structuring performance fees charged by mutual fund advisers.

Details

Journal of Investment Compliance, vol. 7 no. 4
Type: Research Article
ISSN: 1528-5812

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Abstract

Details

Journal of Financial Regulation and Compliance, vol. 11 no. 2
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 29 November 2011

Marybeth Sorady, Daren Domina, Wendy Cohen, Fred Santo, Henry Bregstein, Meryl Wiener, Marilyn Okoshi and Jack P. Governale

This paper aims to explain the rules recently adopted by the Securities and Exchange Commission under the provisions of the Dodd‐Frank Wall Street Reform and Consumer…

Abstract

Purpose

This paper aims to explain the rules recently adopted by the Securities and Exchange Commission under the provisions of the Dodd‐Frank Wall Street Reform and Consumer Protection Act relating to the increased asset threshold for federal registration as an investment adviser, the new exemptions from investment adviser registration (including the exclusion of “family offices” from the definition of an investment adviser), the enhanced reporting obligations imposed on registered and certain exempt advisers, and the definition of a “qualified client” for purposes of applying the performance fee rule under the Investment Advisers Act.

Design/methodology/approach

This paper summarizes the principal content of the Rules and explains their application to investment advisers, focusing in particular on analyzing the impact of the Rules on US and non‐US advisers to private funds.

Findings

The Rules clarify important aspects of the Dodd‐Frank amendments to the Investment Advisers Act and expand the scope of certain registration exemptions as they relate to foreign advisers. The Rules also expand significantly the family office exclusion from investment adviser status.

Originality/value

The paper provides expert guidance from experienced financial services lawyers.

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Article
Publication date: 5 November 2020

Soo Yeong Ewe, Christina Kwai Choi Lee and Ferdinand A. Gul

This study examines the effect of a regulatory-focused prime (i.e. a brochure with a picture and message) on the recommending behavior of investment advisers in the…

Abstract

Purpose

This study examines the effect of a regulatory-focused prime (i.e. a brochure with a picture and message) on the recommending behavior of investment advisers in the context of an investment decision.

Design/methodology/approach

Three experiments were conducted with 468 participants, mostly from the financial services industry. Study 1 examined the direct effect of a regulatory-focused prime on an investment adviser's recommending behavior, whereas Study 2 examined the moderating role of regulatory fit on such behavior. Study 3 validated the findings.

Findings

The results provide evidence that a message using visual and textual cues based on a promotion and prevention regulatory focus may trigger a preference in an investment adviser's product recommendation. A promotion (prevention)-focused framed message will trigger the recommendation of an investment plan with a higher but riskier (safe and stable) potential return. However, when the same prime is presented with details of a performance incentive scheme, the effect of the prime is reduced when there is a regulatory nonfit between the prime and the message relating to the performance incentive scheme.

Practical implications

The findings highlight the importance of understanding how regulatory-focused stimuli may subconsciously influence the recommendation of investment advisers as heuristics used in decision-making, thereby influencing their clients' investment decisions.

Originality/value

Past studies have focused on how regulatory-focused visual and message cues influence consumer decision-making. This study provides empirical evidence regarding the influence of regulatory-focused prime on an investment adviser's behavior when providing investment advice.

Details

International Journal of Bank Marketing, vol. 39 no. 1
Type: Research Article
ISSN: 0265-2323

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Article
Publication date: 2 November 2015

Nathan J. Greene

To explain proposed rules and amendments recently issued by the USA Securities and Exchange Commission (SEC) that would impose more detailed reporting requirements for…

Abstract

Purpose

To explain proposed rules and amendments recently issued by the USA Securities and Exchange Commission (SEC) that would impose more detailed reporting requirements for investment advisers that file Form ADV. A companion article describes the SEC’s proposed registered investment company reporting rules which were issued simultaneously.

Design/methodology/approach

Describes the SEC’s reasoning for collecting more detailed data, introduces the proposed separate account reporting requirements for SEC-registered investment advisers, explains proposed amendments to Part 1A of Form ADV, describes a proposed codification of SEC staff positions that provide for so-called “umbrella registrations” by closely related advisory firms, and details two proposed amendments to Advisers Act Rule 204-2, the books and records rule, which would require investment advisers to maintain additional materials related to the calculation and distribution of performance information.

Findings

Many questions still remain as to how the final rules will eventually take shape; however, it is evident that investment advisers will be subject to a wider array of reporting requirements. Investment advisors are likely to incur increased costs as a result of the proposed rules and amendments, and production of the reports could necessitate a revamp of their various internal procedures. Also, access to additional and enhanced information will have consequences for investment companies with respect to SEC examinations and enforcement activity.

Practical implications

Investment advisers should understand that detailed new regulatory reporting is coming and, more specifically, separately managed account clients of investment advisers should be made aware of the proposed reporting requirements.

Originality/value

Practical guidance from experienced investment funds lawyer.

Details

Journal of Investment Compliance, vol. 16 no. 4
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 1 April 2004

David G. Tittsworth and Geoffrey I. Edelstein

The Securities and Exchange Commission (SEC) has defined “soft dollar” practices as arrangements under which products or services, other than execution of securities…

Abstract

The Securities and Exchange Commission (SEC) has defined “soft dollar” practices as arrangements under which products or services, other than execution of securities transactions, are obtained by an investment adviser from or through a broker‐dealer in exchange for the direction by the adviser of client brokerage transactions to the broker‐dealer. In the wake of the mutual fund scandals of 2003, soft dollar practices have come under increased scrutiny by the SEC, the U.S. Congress, and others. This article is based on testimony presented by the Investment Counsel Association of America (ICAA) to the U.S. Senate Committee on Banking, Housing, and Urban Affairs at a hearing on soft dollars held on March 31, 2004. The article outlines the following positions: (1) the SEC should ensure that there is adequate disclosure about soft dollar practices, combined with appropriate inspection and enforcement of regulations governing such practices; (2) the consequences of abolishing soft dollars ‐ an outcome that would require Congressional action ‐ most likely would affect smaller investment advisory firms adversely, create entry barriers for new investment advisory firms, and diminish the quality and availability of proprietary and third‐party research; (3) investment advisers should be required to keep appropriate records relating to soft dollar arrangements and to develop and implement internal controls and procedures designed to ensure that soft dollar arrangements are supervised, controlled, and monitored; and (4) eliminating the use of soft dollars for third‐party research would harm investors, diminish the availability of quality research, provide a regulatory‐driven advantage for full‐service brokerage firms, disadvantage third‐party research providers, and result in less transparency to investors, regulators, and market participants.

Details

Journal of Investment Compliance, vol. 5 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

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