The Financial Industry Regulatory Authority recently published a Regulatory Notice requesting comment regarding a proposed new rule pertaining to registered persons’ outside business activities.  Among other things, the proposed rule would significantly alter a broker-dealer’s obligations with respect to a registered representative’s conduct of investment advisory business through an unaffiliated registered investment adviser.

FINRA decided to propose this new rule after a “retrospective review of FINRA’s rules governing outside business activities and private securities transactions, FINRA Rule 3270 (Outside Business Activities of Registered Persons) and FINRA Rule 3280 (Private Securities Transactions of an Associated Person).”  FINRA determined that the rules “could benefit from changes to better align the investor protection goals with the current regulatory landscape and business practices.”  As a result, FINRA proposed a new single rule that it claims will make registered persons’ duties in regards to outside business activities clearer and decrease nonessential obligations while enhancing investor protection.

If the proposed rule is adopted, it will replace Rules 3270 and 3280.  The comment period ends on April 27, 2018. Continue reading

The amendments to Form ADV, Part 1 that became effective October 1, 2017 are presenting some registered investment advisers with unforeseen problems as we move into “annual amendment season” in 2018.  As we previously highlighted among those changes to Form ADV is the requirement for advisers to disclose estimated percentages of assets held within separately managed accounts in twelve categories of assets.

Advisers with more than $10 billion in regulatory assets under management are required to report the same data as of mid-year and year-end.  Smaller firms must report the same data as of year-end only.

This has not proved a simple exercise for some firms.  Many have assumed that the custodians of their clients’ assets would readily be able to categorize their clients’ holdings and provide them reports summarizing the data.  Continue reading

Most deficiencies identified in the course of investment adviser examinations can be remedied by the adviser simply taking corrective measures. This can be true even with regard to deficiencies that are somewhat serious violations, but only if corrective action is taken and sustained.

In 2016, the Securities and Exchange Commission (“SEC”) starkly demonstrated the importance of following through with promises advisers make to the SEC Examinations Staff. Because they did not make promised corrections, Moloney Securities Co., Inc. and Joseph R. Medley, Jr. were forced to consent to the entry of an Order Instituting Proceedings that required them, among other things, to pay civil penalties and to hire an independent compliance consultant to monitor and report certain aspects of the firm’s compliance program. Continue reading

Nebraska has proposed multiple changes to its securities laws, including changes to investment adviser registration requirements, changes related to broker dealers and agents, and changes relating to securities registration procedures.

As the proposed changes relate to investment advisers, Nebraska proposes to eliminate the Form IAR and to substitute registration through the CRD/IARD system.  An original application for registration would be required to contain Form ADV, Part 2 for the firm and a brochure supplement for each investment adviser representative.  An original application would also be required to contain copies of all other promotional or disclosure literature expected to be provided to clients and perspective clients in Nebraska.  The proposed rule would eliminate from the registration renewal requirements, the current requirements of submission of Form IAR and the promotional and disclosure literature.  The rules would align Nebraska with the annual updating amendment requirements of other states, by requiring submission of annual updating amendments to Form ADV within 90 days of the end of the fiscal year.  Additionally, the rule would require firms to submit other-than-annual amendments to Form ADV as required by the Form ADV instructions.

The proposed rule would also require brochure delivery to clients in a manner consistent with the requirements of most other states.  For example, delivery of Part 2 and a brochure supplement for each individual that provides investment advice and has direct contact with the client, or exercises discretion over the client’s assets in Nebraska either at the time of entering into an advisory contract or within 48 hours before entering into the contract.  If the delivery is made at the time the contract is entered into, the client must be given the right to terminate the contract without penalty within 5 days of entering into the contract.  Either an annual update or summary of material changes must be delivered to each client within 120 days after the end of the firm’s fiscal year.

Parker MacIntyre welcomes Thomas W. Zagorsky as a guest contributor to the RIA Compliance Blog.  Tom is a long-time friend of, and collaborator with, our firm.  His wealth of legal experience includes serving as Assistant Commissioner of Securities for the State of Georgia from 2013 to 2015 and a practice of law, both with private law firms and investment banking and private funds, for nearly 15 years.  He specializes in hedge fund formation, private securities offerings and other aspects of securities and investment services law.  Tom is well-versed in the rules and regulations relating to investment advisers, including private fund advisers, managers of private equity funds and other pooled investment vehicles.

Tom has kept a keen eye on recent statutory and rule developments impacting issues such as crowdfunding, private placement reform, and other statutory and regulatory innovations relating to corporate finance and capital formation.


Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.

Earlier this month, FINRA issued a regulatory notice advising that it has proposed various changes to the rules relating to gifts, gratuities and non-cash compensation.  If adopted, the proposal would amend FINRA Rule 3220 (the “Gifts Rule”) and would create two new rules, Rule 3221 (“Non-Cash Compensation”) and Rule 3222 (“Business Entertainment”).

The current Gifts Rule prohibits any FINRA member or associated person from giving anything of value in excess of $100.00 per year to any person, if such payment is connected with the business of the recipient’s employer.  Under the proposed revised Gifts Rule, the $100.00 limit would be increased to $175.00 per recipient per year.  The proposed increase is designed to account for the rate of inflation since the adoption of the original Gifts Rule.  The current requirements that all associated persons’ gifts must be consolidated with those of the member firm and that records be maintained with respect to all such gifts, will be continued in the new rule.  Continue reading

Pursuant to an order entered by the Securities and Exchange Commission (“SEC”) on June 14, 2016, the exemption contained under Rule 205-3 of the Investment Advisers Act (“Advisers Act”), which allows registered investment advisers to charge performance-based compensation to clients notwithstanding the general prohibition against same contained in Section 205(a)(1) of the Advisers Act, will be slightly modified.  This modification is the result of a provision in the Dodd-Frank Act (“Dodd Frank”) implementing a provision of that act under Rule 205-3, which requires the SEC to adjust the dollar amounts contained in the exemption for inflation and to round the adjustment to the nearest $100,000.00.  This adjustment must occur every five years.

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Last month the Securities and Exchange Commission (“SEC”) sanctioned a registered investment adviser and its managing member for violating the Investment Adviser’s Act of 1940 (“Adviser’s Act”) and for acting as an unregistered broker-dealer in connection with the services the adviser provided to a private fund that it managed and the fees charged for those services.

Blackstreet Capital Management, LLC (“Blackstreet”) serves as the manager of two private equity funds (the “Funds”).  In the Funds’ governing documents, Blackstreet disclosed to the Funds’ investors that it would charge fees for brokerage services rendered in connection with acquiring portfolio companies.  Blackstreet did, in fact, perform brokerage services including soliciting transactions, identifying buyers and sellers, negotiating and structuring transactions, arranging for financing, and executing transactions. In exchange for those services it received over $1.8 million.

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The Securities and Exchange Commission (SEC) has frequently said that an investment adviser’s fiduciary duty requires an adviser to plan for unexpected disruptions in business. Consequently, advisers have developed business continuity plans as a “best practice” without necessarily being required to do so by rule.  Recently, however, the SEC proposed a rule that would require all SEC-Registered investment advisers to adopt and implement written business continuity and transition plans and to review them no less often than once per year.  The SEC also issued guidance for the baseline requirements that such plans should contain.

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The Massachusetts Securities Division (the “Division”) recently issued a policy statement in which it stated, “It is the position of the Division that fully automated robo-advisers, as currently structured, may be inherently unable to carry out the fiduciary obligations of a state-registered investment adviser.”  According to the Division, robo-advisers are generally incapable of fulfilling their fiduciary obligations, principally because they do not meet with clients, gather sufficient information on which investment advice can be rendered, nor provide highly personalized advice tailored to the information gathered.  Continue reading