2020 Year in Review: Top 5 Hits

2020 has been quite the year! The regulatory developments for investment advisers have been fast and furious this year.  Here are CompliDynamics’ top 5 regulatory developments highlighted below:

1-The U.S. Securities and Exchange Commission (“SEC”) revamped the decades-old Advertising & Solicitation Rules under the Investment Advisers Act of 1940

• The SEC released its final rule, December 22, 2020, revamping the Advertising Rule and Cash Solicitation Rule. The SEC merged the Advertising Rule and the Cash Solicitation Rule in a single rule and new moniker, the Marketing Rule. Here are some highlights:

  • Definition of advertisement has been expanded;

  • Testimonials & Endorsements are allowed subject to certain conditions, such as disclosure, oversight and disqualification provisions;

  • Third-Party ratings are allowed subject to certain requirements, e.g., disclosure, etc.;

  • Performance information use including hypotheticals in advertisements subject to conditions;

  • Additional Form ADV disclosure requirements.

• Final Rule is effective 60 days after publication in the Federal Register in addition to a subsequent period allowed investment advisers for compliance with the new rules.

2-SEC Observations: Investment Adviser Compliance Programs Risk Alert

• Office of Compliance Inspections and Examinations (OCIE) published a risk alert (Nov 2020) highlighting common deficiencies related to the Investment Adviser Act 206(4)-7 (the “Compliance Rule”).

  • #1 Common Deficiency:

    • Inadequate Compliance Resources — Advisers did not devote adequate resources, such as information technology, staff and training, to their compliance programs.

3-Form CRS (Client Relationship Summary) new disclosure document

• This is a new disclosure document requirement for federally registered IAs to provide “retail investor” clients a streamlined 2-page document detailing the investment adviser services, fees, and investment adviser representatives’ disciplinary history.

4-Accredited Investor Definition  

• The SEC amended the accredited investor definition to include investors with knowledge and expertise in investments.

• Final rule effective as of December 8, 2020.

5-Department of Business Oversight changed its name & website

• Department of Financial Protection & Innovation (“DFPI”) & website (dfpi.ca.gov)

• This will affect CA State Registered Investment Advisers (“RIA”) & federal RIAs with a place of business in California. DFPI is the regulatory agency for CA state registered investment advisers.

• Signals a new shift, effective as of January 1, 2021, the California Consumer Protection Law …will expand our powers of enforcement powers to protect California consumers from pandemic-inspired scams, promote innovation, clarify regulatory hurdles for emerging products, and increase education and outreach for vulnerable groups… (Source: dfpi.ca.gov)