RVL Series 65

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  1. Who enforces the IAA for IAs?
    The SEC only, no SROs (Self-regulatory organizations)
  2. What will the SEC do if violations of the law are suspected?
    • The SEC may:
    • - Subpoena witnesses, books and records
    • - acquire evidence
    • - administer oaths
    • - ask court for injunction stopping activity until hearing
  3. What can the SEC do to an IA?
    • - censure or
    • - place limitations on activities, functions or operations
  4. Can the SEC revoke an IAs registration?
    Yes, after a hearing.
  5. For how long can the SEC suspend an IA?
    no more than 12 months
  6. How does enforcement under the USA differ from enforcement at the SEC?
    • The Administrator will be responsible for doing everything the SEC can do but:
    • - suspensions are not limited to 12 months
    • - all cases are prosecuted in State courts
    • - if criminal penalties, a fine of no more than $5,000
    • - or no more of three years in prison, or both
  7. What are the maximum penalties issued by the SEC to an IA?
    • - no more than $10,000 fine
    • - no more than 5 years in jail
    • - or both
  8. What are the compliance rules under the IAA 1940?
    • Amendment dated October 2004 requires IAs registered with the SEC to:
    • 1. adopt written policies and procedures
    • 2. review the policies at least annually
    • 3. designate a Chief Compliance Officer (COO)
  9. What are the qualifications of the Chief Compliance Officer (COO)?
    • sufficient seniority and authority
    • compell other in the organization to comply
    • must have its identity disclosed on form ADV
    • does not need to have any level of experience or special testing qualifications
  10. What is rule 206(4)-7 of the IAA?
    It is unlawful for a registered with the SEC to perform the duties of an IA unless it has implemented written procedures designed to prevent infractions against the IAA by the IA or its representatives.
  11. What should be the minimum items covered in an IAs written policies and procedures?
    • Portfolio management procedures
    • Trading practices
    • Proprietary trading and personal trading activities of their reps.
    • Accuracy of disclosures to investors
    • Safeguarding of clients assets
    • Record keeping
    • Marketing Procedures
    • How fees and AUM are calculated
    • Privacy Policy
    • Business Continuity Plans
  12. How often should and IA review its written policies and procedures under the IAA 1940?
    At least annually but are encouraged to do it more often.
  13. What are the other practices that an IA must disclose to his clients?
    factors and considerations used in choosing the broker/dealersuch as client referrals between itself and the broker/dealer, directed brokerage and trade aggregation and allocation.
  14. How should an IA handle client referrals from a broker/dealer?
    • This arrangement is considered as if the IA is compensating the broker dealer and thus the IA must:
    • - disclose the arrangement to clients and
    • - insure charges by the broker/dealer are reasonable.
  15. What is directed brokerage?
    The practice of asking or permitting the trades to be handled by an specific broker/dealer.
  16. What should the IA disclose in the case it directs trades of clients to a specific broker/dealer?
    • It must disclose to clients the arrangement and any conflicts of interest, including soft dollars, if applicable.
    • Services must be priced reasonably to their cost.
  17. What should the IA disclose if the client directs the trades?
    The IA must disclose that the client might not receive preferred trading arrangements for not having high volume of trades with that broker/dealer.
  18. What is trade aggregation and allocation?
    The practice of bundling or bunching trades to obtain volume discounts on execution costs. If a large, bundled order, is filled in separate trades the average cost is assumed to be the fairest method of allocating costs to a number of clients.
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RVL Series 65
2012-06-13 02:25:29
RVL Series 65 IAA 1940

Other Brokerage Practices, Compliance Programs and Enforcement under the IAA 1940
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