As discussed in earlier stories on this blog, the SEC was challanged by an investment advisors association in court for exempting Wall Street brokerage firms from liability under laws governing investment advisors, despite the fact that the brokerage firms were performing identical services.
The investment advisors won their suit a few months ago, ending the “Merrill Rule”, which had strangely been championed by the SEC, a 75 year old govenment agency created to protect investors. The SEC Chairman then personally, and not on behalf of the SEC, asked Congress to end “soft dollar” arrangements for investment advisors which he said were being abused.
It its latest ComplianceAlert letter to chief compliance officers of registered firms, the SEC has highlighted numerous areas of noncompliance, including performance advertising deficiencies “discovered” during a SEC review of several registered investment advisers.
The most common deficiency, the letter said, was that many advisory firms’ advertisements reguarding their performance returns omitted proper disclosures and were thus misleading. For example, there was no disclosure whether advisory fees had been deducted from the performance results, the SEC advisory said. Nor was there information in the advertisements as to whether dividends and other important data was considered when calculations were made to compare the advisors’ performance to a benchmark index, such as the S&P.
The SEC alert mentioned that its review found only one investment advisor in full compliance, which is likely to send chills through the investment advisor community. While the letter also covered sales of collateralized mortgage obligations, real estate investment trust products and college savings plans, it was clear that investment advisors are directly in the SEC’s sights.
Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.
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