Page 34 - Investment Advisor February/March 2023

the SEC, in proposing a rule, would regulatory requirements relating to reg- 5. Private Fund Advisors;
“take this opportunity to clarify some istered investment companies’ fees and Documentation of RIA
ambiguities under the existing rule so fee disclosure, which includes 12b-1 fees. Compliance Reviews
that firms have more certainty regarding The SEC plans to issue a final rule in
their obligations.” 4. Investment Company Names April to adopt rules under the Advisers
The commission plans to issue a final Act to address lack of transparency, con-
2. RIA Outsourcing rule in October to address certain broad flicts of interest, and certain other mat-
The SEC also plans to propose in April categories of investment company names ters involving private fund advisors.
rules that would require advisors to that are likely to mislead investors about The SEC’s proposal “was controver-
vet third-party service providers. The investments and risks. sial,” says Hanna of Eversheds.
comment period on the plan expired on The proposed amendments to the rule, The sweeping plan, which includes
Dec. 27. according to the SEC, “are designed to five new rules, according to IAA, would
Bernstein told the agency in IAA’s increase investor protection by improv- prohibit private fund advisors from “con-
comment letter that the plan ducting certain practices and
is “unnecessary and unwar- from charging certain fees. The
ranted. It will have sweeping SEC chief Gary Gensler said he proposal would also require
implications for all advisors supports the agency’s short- and financial audits of private funds,
and their service providers fairness opinions for adviser-
and substantial negative con- long-term agenda “as it reflects led secondary transactions, and
sequences for smaller advisers quarterly reporting about fees,
and smaller service providers.” the need to modernize our ruleset, expenses, and performance
Further, she said, the com- moving deliberately to update our related to each private fund and
mission “has not shown that the its portfolio companies.”
existing framework is lacking,” rules in light of ever-changing
and has “proposed a broad new 6 and 7. Digital Engagement
oversight framework. While technologies and business models Practices for RIAs and BDs
the new framework is vague in in the securities markets.” The SEC’s Division of
its contours, its requirements Investment Management
are overly prescriptive.” plans to propose two sepa-
David Bellaire, general counsel for ing and clarifying the requirement for rate rules — one for RIAs and one for
the Financial Services Institute, told the certain funds to adopt a policy to invest BDs — related to the use of predictive
SEC in his comment letter that the plan at least 80% of their assets in accor- data analytics, differential marketing and
is “unnecessary and unwarranted,” and dance with the investment focus that the behavioral prompts. The rules would
urged the commission “to reconsider fund’s name suggests, updating the rule’s address the “gamification of investing.”
the necessity for moving forward with notice requirements, and establishing Gensler has questioned when design
a new rule.” recordkeeping requirements.” elements and psychological nudges
Instead, Bellaire recommended the The plan has received pushback. associated with digital engagement plat-
SEC “consider providing additional Eric Pan, president and CEO of the forms, or DEPs, “cross the line” and
principles-based guidance under the Investment Company Institute in become recommendations.
Compliance Rule to assist advisers in Washington, told the SEC in August to “The answer to that question is
tailoring their oversight processes to an discard its plan. The SEC’s current fund important, because that might change
ever-evolving landscape.” names rule “has worked well for 20 the nature of the platform’s obligations
Even if the commission determines years. It recognizes that a fund’s name under the securities laws,” Gensler has
that a new rule is called for, Bellaire does not, and cannot, communicate said. “Even if certain practices might
added, as crafted the proposal is “not suf- everything that investors want to know not meet the current definition of rec-
ficiently tailored to achieve its goals. It about a fund before investing,” Pan said. ommendation, I believe they raise a
also fails to adequately assess the poten- Prospective investors, Pan contin- question as to whether there are some
tial negative consequences for advisers, ued, “understand that a name is simply appropriate investor protection guard-
their clients, and service providers.” a starting point for understanding the rails to consider, beyond simply the
fund’s investment strategies. In addi- application of anti-fraud rules.”
3. Fund Fee Disclosure and Reform tion to the name, there are extensive
The agency plans to recommend in documents prepared by funds describing Washington Bureau Chief Melanie Waddell can
October that the SEC propose changes to their strategies, objectives and holdings.” be reached at [email protected].

32 INVESTMENT ADVISOR FEBRUARY/MARCH 2023 | ThinkAdvisor.com