Articles Tagged with Conflicts of Interest

Earlier this month, the Securities and Exchange Commission announced the examination priorities for registered investment adviser and broker-dealer examinations to be conducted in 2021 by the SEC’s Division of Examinations (formerly the Office of Compliance Inspections and Examinations).

The list included a continued focus on conflicts of interest, including examining for compliance with Reg BI (for broker-dealers) and with an investment adviser’s fiduciary duty. Among the matters examined will be whether RIAs comply with care and loyalty duties that arise from the fiduciary duty. Whether firms have taken appropriate steps to mitigate, disclose or eliminate conflicts of interest will continue to be a focus, with an emphasis on whether customers received enough information to be the basis of informed consent. The Division will also continue to prioritize examining information regarding investment products that carry elevated risks, such as certain ETFs, municipal securities, private placements, variable annuities, and microcap securities.

Not surprisingly, the Division will also focus on two areas that were emphasized over the last two years to varying degrees: ESG-related risks and disclosures and proxy voting practices. RIAs who offer asset management based on ESG principles will be questioned regarding their representations regarding products or services provided, including representations regarding third-party managers or products. The Division will also examine to ensure that proxies have been voted consistent with customer’s desires to invest in ESG focused investments.

Business continuity and disaster recovery plans will be a focus this year, including whether lessons learned during the pandemic have appropriately informed changes to such plans. A greater emphasis will also be placed on climate-related risks, due to greater instances of climate hazards experienced in recent years attributable to climate change. These types of issues will be of heightened concern for examinations of critical market participants such as clearing firms and market makers.

Continue reading ›

SEC Issues Risk Alert to Private Fund Advisers, Part 2

This supplements our previous post relating to a Risk Alert issued by the SEC’s Office of Compliance Inspections and Examinations on June 23. The Risk Alert was directed at investment advisers to private investment funds. While the prior post discussed the portion of the Risk Alert dealing with fees and expenses, this post discusses the SEC’s findings relating to failure to disclose conflicts of interest.

By way of background, the Risk Alert reminds private fund advisers that they owe duties of care and loyalty to the investors in private funds. In order to fulfill the duty of loyalty, the adviser may not prefer his own interests to those of the investors and must disclose to its clients, in a full and fair manner, all material facts relating to the advisory relationship. The scope of the investment adviser’s duties is discussed at length in IA-5248, issued in June 2019, which we have discussed in a previous post.

Continue reading ›

Contact Information