Regulatory Round Up - March 2024

In this month's edition of True West's Regulatory Round-Up, we highlight crucial tasks and updates for SEC-registered firms.

The primary focus for March is the annual updating amendment to Form ADV. RIAs must submit this amendment within 90 days after the end of their fiscal year, which for most firms means by March 31. The amendment requires a summary of all material changes since the last update, which must be delivered to clients within 120 days. Firms should maintain consistent reporting across Form ADV Part 1A and Part 2A, and detailed notes should be kept to substantiate reported figures.

This month's round up also addresses recent enforcement actions. The SEC fined 16 firms over $81 million for failing to maintain proper records of electronic communications, with LPL Financial alone fined $50 million for similar issues. These cases underscore the importance of adhering to approved communication methods and maintaining accurate records.

Another notable enforcement action involved TIAA-CREF, which was fined $2.2 million for failing to comply with Regulation Best Interest (Reg BI). This failure was related to not disclosing lower-cost share classes of affiliated funds to clients. The newsletter advises firms to review mutual fund share classes continuously and document these reviews to ensure compliance.

The March exam tip focuses on endorsements and promoter arrangements. Firms must keep detailed records of all compensated referrals, including fee arrangements and due diligence reviews to ensure compliance with the new Advertising Rule. This rule includes tracking both cash and non-cash compensations.

Additionally, the newsletter provides a monthly CCO checklist. Key tasks for March include updating client lists, reviewing marketing materials, ensuring no breaches of client information, and confirming the firm's annual amendment has been filed. The checklist also emphasizes the importance of reviewing promoter agreements and tracking gifts and entertainment to comply with the new rule on compensations.

By following these guidelines and maintaining thorough documentation, SEC-registered firms can better navigate the regulatory landscape and protect their operations.