Securities and Exchange Commission
Investment Advisers registered with the Securities and Exchange Commission (“SEC”) and state securities authorities are required to file an annual updating amendment to the Form ADV (“Annual Update”). Investment advisers are required to file the Annual Update by March 31st, if their fiscal year ends December 31st, so that the amendment is submitted within ninety (90) days of the fiscal year end. For investment advisers with a fiscal year end in a month other than December, the Annual Update must be filed within ninety (90) days of their fiscal year end. The Form ADV is submitted and updated using the Financial Industry Regulatory Authority’s (“FINRA”) Investment Adviser Registration Depository (“IARD”) system.
A fee is charged for filing an Annual Update to the Form ADV. The Annual Update fee is determined by the amount of regulatory assets under management. The fee ranges from $40 to $225. Prior to filing an Annual Update, the investment adviser will need to have sufficient funds in its IARD Flex-Funding Account to cover the renewal fees associated with the updating amendment. The Flex-Funding Account is the financial account used by investment advisers to fund and pay fees associated with adviser filings and registrations. The account can be funded electronically through IARD. FINRA also accepts payment by check or wire transfer to fund the account.
National Futures Association
The National Futures Association (“NFA”) has modified the EasyFile Registration Documentation Submission System (“RDSS”) used by swap dealers (“SDs”) and major swap participants (“MSPs”). The NFA announced the changes to the filing system in a March 5th Notice to Members, Notice I-15-11. Changes to RDSS were effective March 9th.
Registered SDs and MSPs use RDSS to electronically file required documentation to ensure compliance with Commodity Futures Trading Commission (“CFTC”) Section 4s Implementing Regulations (“4s Submissions”). The NFA provides a complete list of required 4s Submissions, due dates and the corresponding Commodity Exchange Act rule. Modifications to RDSS allow SDs and MSPs to view all NFA communications regarding 4s Submissions within the filing system. The 4s Submissions will now be classified as active and historical. Active 4s Submissions are currently under review and/or require action by the SD or MSP. Historical 4s Submissions are no longer under review and do not require any further action from the SD or MSP.
Additional modifications to RDSS were implemented to allow the NFA to communicate directly with the SD or MSP regarding a 4s Submission. All communication pertaining to 4s Submissions will be facilitated through RDSS. The NFA will notify the firm’s chief compliance officer (“CCO”) as well as the additional compliance contact (if applicable), both of which are required to be on file in the Online Registration System (“ORS”) and up-to-date. SDs and MSPs will respond to NFA communications, as it pertains to 4s Submission, using RDSS. Access to RDSS is granted through ORS. It is the responsibility of the firm’s ORS security manager to ensure the appropriate personnel have access to RDSS.
Department of Labor
On February 23rd, the White House released a white paper regarding conflicted investment advice and retirement savings (the “Report”). The Report, aptly titled “The Effects of Conflicted Investment Advice on Retirement Savings”, strongly encourages the Department of Labor (the “DOL”) to extend fiduciary standards to retirement advisers. The same day, the White House also issued a press release in which President Obama called upon the DOL to proceed with rules to protect families from bad retirement advice by requiring retirement advisers to comply with expanded fiduciary standards. The intent of the proposed rules would be to mitigate conflicts of interest for investment advisers thus ensuring a clients’ best interest comes before the advisers own profit. Rules to mitigate conflicts of interest in investment advice by expanding the fiduciary standard were first proposed in 2010 but defeated the following year.
As per the Report, the current rules regarding retirement advice fail to protect investors by allowing retirement advisers to receive compensation in the form of backdoor payments and hidden fees. The conflict of interest occurs when a retirement adviser directs a client to bad retirement investments, with high costs and low returns, in order to benefit from backdoor payments and hidden fees. The Report estimates the aggregate annual cost of conflicted advice to be around $17 billion each year. The Report relied heavily upon the findings of a similar report issued by the Council of Economic Advisers. The Council of Economic Advisers report concluded that conflicted investment advice reduces investors’ returns by about one percentage point per year. In the coming months, the DOL is expected to issues proposed rules in an attempt to modernize and set new fiduciary standards for retirement advice.
For further information about any of the topics covered, please feel free to contact the Ruddy Law Office, PLLC (www.ruddylaw.com) or 202-797-0762.