More On Legal & Compliancefrom The Advisor's Professional Library
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
Norm Champ, director of the Securities and Exchange Commission’s Division of Investment Management, said Friday that his division had launched an “IM Moving Ahead” initiative to assess where the division had “gaps” and to help the division identify its policy priorities.
Speaking at the SEC Speaks conference in Washington, sponsored by the Practising Law Institute, Champ (left) said teams were created to help the division’s “Moving Ahead” initiative pinpoint “common themes” and to then put together an “action plan.”
Having identified its priorities, Champ said his division’s “immediate” agenda will focus on three areas: money market fund reform as informed by the recent study performed by the SEC’s Division of Risk Strategy and Financial Innovation (RiskFin); following up on a February 2012 proposal regarding identify theft “red flags” by proposing a rule this year; and to “continue to work with the industry” on a valuation proposal for mutual funds.
SEC Commissioner Daniel Gallagher said during his remarks at the event that after being provided with RiskFin's “rigorous study and economic analysis on money market funds that a bipartisan majority of the Commission asked for,” the SEC will “move forward shortly” with a rule proposal on further reforms to money market funds.
While not providing a timeline, Champ said other areas of focus for the division include drafting a rulemaking on a variable annuity summary prospectus and “working on” a rule to “codify some of the exemptive relief that’s out there” regarding exchange-traded funds.
Proposed amendments to rules under the Investment Advisers Act are also being mulled as since Dodd-Frank, the number of advisors to private funds that have registered with the agency have increased substantially. “Almost 40% of our advisors are advisors to private funds,” he said.
The division also continues to help the agency on its rule to put brokers under a fiduciary mandate, with the next step being a further request for public comment to be released soon regarding the cost/benefits of a such a rule.
Current SEC Chairwoman Elisse Walter told reporters after her speech at the event that the fiduciary issue “is very important” to her, but declined to say whether a rule proposal would be issued this year.
ETF and Fund Trends
As to ETFs, Barry Miller, an associate director in the investment management division, who spoke on the same panel as Champ, said that the agency continues to see both managed funds and index funds, but is seeing “more specialized, or customized indices” these days. Overall, he said, the division is “seeing ETFs offering the same [investments] as mutual funds,” but most of the funds are making “substantial investments in derivatives,” with “boilerplate disclosures.” This has prompted the division to ask the funds to provide more specifics about those investments.
As to trends the agency is seeing in mutual funds, Miller said “the smaller category of funds is the fastest growing,” which includes those funds that are using hedge fund techniques to reach their investment objective, like long/short funds.
More traditional hedge fund managers are “getting into the registered field,” he continued, and funds are also “paying more attention” to volatility. Funds are “purchasing lower volatility stocks and have volatility in their name.”