Investment Management Regulation: Year in Review

by Kilpatrick Townsend & Stockton LLP

As we prepare for a new year of regulatory initiates and actions, we believe it is important to take inventory of the most significant regulatory events from the past year. True to its word, the SEC focused on reducing unnecessary regulatory burdens and increasing its efforts to protect unsophisticated investors. We believe the SEC will remain dedicated to its stated priorities and continue the initiatives it began in 2018. As preparation for the year ahead, we invite you to review a summary of regulatory initiatives and actions from the past year.

SEC Enforcement Results and 2019 Priorities
On November 2, 2018, the SEC announced the results of its enforcement actions for fiscal year 2018 and stated its enforcement priorities for fiscal year 2019. The past year’s enforcement actions focused on both new concerns (e.g., Initial Coin Offerings) and traditional focuses (e.g., investment adviser fee calculations) of the SEC. For the current fiscal year, the SEC will continue to be guided by five core principles:  (1) a focus on Main Street (i.e., unsophisticated) investors; (2) a focus on individual (as opposed to organizational) accountability; (3) keeping pace with technological changes; (4) imposing sanctions that most effectively further enforcement goals; and (5) assessing the allocation of resources.

You can learn more about the SEC’s enforcement actions and priorities by reading our previously published article.

SEC Scrutiny of Share Class Selection Practices Continues
Last February, the Division of Enforcement of the SEC launched the Share Class Selection Disclosure Initiative. The initiative enabled registered investment advisers to self-report their failure to disclose certain mutual fund share class selection practices on their Form ADVs in return for a settlement with the SEC that, among other things, would not include civil penalties. The initiative ended on June 12, 2018, but the Division of Enforcement has stated that it will continue to make mutual fund share class selection practices a priority.

You can learn more about the SEC’s scrutiny of share class selection practices by reading our previously published article.

Opportunity Zones
Last year’s Tax Cuts and Jobs Act created an incredible opportunity for private fund managers:  the “Opportunity Zone Program.”  Congress enacted the Opportunity Zone Program to encourage long-term investments in low-income communities designated as “opportunity zones” by state governments. Essentially, the program allows investors to (1) defer paying taxes on capital gains by re-investing the gains in qualified opportunity funds, and (2) exclude from the calculation of taxable gross income any gains recognized from investments in qualified opportunity funds that are held for more than ten years. Qualified opportunity funds present an exciting opportunity for private fund managers.

You can learn more about the Opportunity Zone Program by reading our previously published white paper, article, and list of Opportunity Zone key features.

Clarifying the Single Issuer Exemption for Broker-Dealers
On September 20th, the SEC released a proposed rule amending Rule 17a-5 of the Securities Exchange Act of 1934. Under Rule 17a-5(d)(1)(i)(C) of the Exchange Act, broker-dealers registered with the SEC generally must file an annual report that includes financial reports audited by an independent public accountant registered with the Public Company Accounting Oversight Board. Under the proposed rule, the audit requirement would not apply where a broker-dealer’s business is “limited to acting as broker (agent) for a single issuer in soliciting subscriptions for securities of that issuer…”  The proposed rule could be particularly helpful to private funds and their investment advisers, some of which have created broker-dealers for the express purpose of selling fund shares.

You can learn more about the single issuer exemption by reading our previously published article.

OCIE Risk Alert Highlights Adviser Best Execution Deficiencies
On July 11th, the SEC’s Office of Compliance Inspections and Examinations released a Risk Alert highlighting the most frequent compliance issues with respect to the duty to seek best execution. The Risk Alert identified the following issues as the most-observed deficiencies among over 1,500 adviser examinations:

  • Advisers did not perform best execution reviews or could not demonstrate through documentation they performed such review.
  • Advisers did not consider materially relevant factors during best execution reviews.
  • Advisers used a single broker-dealer without comparison to other broker-dealers.
  • Advisers did not provide full disclosure of their best execution practices and did not review trades to ensure the prices obtained fell within a reasonable range.
  • Advisers did not provide full and fair disclosures of their soft dollar arrangements.
  • Advisers did not make a reasonable allocation of the cost of mixed use products or services.
  • Advisers had inadequate compliance policies and procedures with respect to best execution.
  • Advisers were not following their own best execution policies and procedures.

You can learn more about the Risk Alert by reading our previously published article.

Georgia Court Rules that the Terms of Employment Agreements Trump the Broker Protocol
On June 27th, the Court of Appeals of the State of Georgia issued an opinion in HA&W Capital Partners LLC et al v. Bhandari et al that will have significant implications of Georgia-based investment advisers and potentially for advisers outside the state as well. At issue in the case was whether four investment advisers leaving their employer, which was a signatory to the Protocol for Broker Recruiting (the “Broker Protocol”), were required to provide notice of their departure pursuant to terms in their respective employment agreements or whether the terms of the Broker Protocol rendered those notice terms invalid. The court held that “the protocol does not categorically invalidate notice provisions in employment agreements.”  Ultimately, the opinion may lead to additional deterioration of the Broker Protocol and return to the primacy of individual contracts in regulating adviser migration between firms.

You can learn more about the employment agreements and the Broker Protocol by reading our previously published article.

Amendments to the Liquidity Rule
On June 28, 2018, the SEC finalized an amendment to the Liquidity Rule replacing the so-called “bucket approach”. Instead, funds were required to discuss the operation and effectiveness of its liquidity risk management program in its annual report. The SEC replaced the bucket approach because classifying assets is inherently subjective and the bucket approach did not provide investors the necessary context to understand how the classification relates to the fund’s liquidity and risk management. The SEC believes a narrative description in the fund’s annual report will “better inform investors of how the fund’s liquidity risk and liquidity risk management practices affect their investment.”

You can learn more about the amendments to the Liquidity Rule by reading our previously published article.

SEC Launches Howey Coins Website
The SEC has consistently demonstrated concern over the marketing of cryptocurrency trading and investments in initial coin offerings (“ICOs”), which SEC Chairman Jay Clayton has called “fertile ground for bad actors to take advantage of our Main Street investors.”  On May 18th, to illustrate the ways in which “bad actors” operate, the SEC’s Office of Investor Education and Advocacy created a website promoting fictional Howey Coins. The website included red flags commonly seen in ICO promotions:  guaranteed returns, special entry rates, claims of special (albeit secret) partnerships, and celebrity endorsements.

You can learn more about the Howey Coins website and the SEC’s views towards ICOs by reading our previously published article.

SEC Proposes Regulation Best Interest
On May 9, 2018, the SEC released its much-anticipated proposed rule (“Regulation Best Interest”), which is intended to set the standard of conduct for broker-dealers and displace the Department of Labor’s so-called “Fiduciary Rule”. As anticipated, the SEC did not to hold broker-dealers and their associated persons to a fiduciary standard. Instead, Regulation Best Interest would require the broker-dealer “to act in the best interest of the retail customer at the time the recommendation is made without placing the financial interest of the broker-dealer or natural person that is an associated person making the recommendation ahead of the interest of the retail customer.”

You can learn more about Regulation Best Interest by reading our previously published article.

SEC Proposed Rules to Help Distinguish Between Advisers and BDs
On April 18, 2018, the SEC issued proposed rules which would require investment advisers and broker-dealers to provide summary disclosure documents to new retail investors. The documents would inform investors of, among other items:  (i) the relationship and services the firm offers to retail investors, (ii) the standard of conduct and the fees associated with those services, (iii) conflicts of interest, and (iv) comparisons of brokerage and investment advisory services (for standalone investment advisers and broker-dealers). The proposed rules would also prohibit broker-dealers from using certain confusing terms to describe themselves and their representatives, like “adviser” or “advisor” as part of a name or title.

You can learn more about the proposed rule by reading our previously published article.

OCIE Issues Adviser Fees and Expenses Risk Alert
On April 18, 2018, the SEC’s Office of Compliance Inspections and Examinations released a Risk Alert on the most frequent compliance issues relating to advisory fees and expenses. The Risk Alert identified the following six compliance issues as the most observed deficiencies related to fees and expenses:

  • Advisers using a metric or process to value a client’s account that was different from the metric or process stated in the advisory agreement;
  • Advisers billing fees in advance or with improper frequency;
  • Advisers applying an incorrect fee rate when calculating advisory fees for certain clients;
  • Advisers failing to apply discounts or rebates in the manner described in the advisory agreement;
  • Advisers using Form ADV Part 2 disclosures that were inconsistent with the adviser’s actual practice; and
  • Private and registered fund advisers misallocating expenses to clients in contravention of advisory agreements, operating agreements and disclosure documentation

You can learn more about the Risk Alert by reading our previously published article.

SEC Issues Cybersecurity Guidance
On February 21, 2018, the SEC released an interpretative guidance on public company cybersecurity disclosures (the “2018 Guidance”) that reinforced and expanded guidance issued in 2011. The 2018 Guidance reminds companies that current SEC disclosure requirements include the obligation to disclose cybersecurity risks and incidents. The 2018 Guidance also describes certain factors companies should consider when determining whether a cybersecurity risk or incident is material. These factors include the importance of the compromised information, impact on company operations, and range of harm an incident may cause. The 2018 Guidance states that companies should provide useful information to investors while cautioning that companies must avoid both overly detailed disclosures that could compromise their cybersecurity efforts and disclosures that are too generic. The obligations and considerations detailed in the 2018 Guidance are envisioned to fit within a comprehensive compliance program. To that end, companies should have “comprehensive policies and procedures related to cybersecurity” and “assess their compliance regularly.”

You can learn more about the 2018 Guidance by reading our previously published article.

FINRA Proposed Rules Friendly to RIAs
In February, FINRA proposed a rule addressing FINRA-registered broker-dealer’s responsibilities to supervise the outside business activities of their registered representatives. According to FINRA, the proposed rule is “intended to reduce unnecessary burdens while strengthening investor protections relating to outside activities.”  The proposed rule eliminates broker-dealer’s ongoing supervision requirements with respect to their registered representative’s investment advisory activities, including serving as investment adviser representatives of registered investment advisers. The proposed rule also eliminates various supervisory requirements of broker-dealers over such registered representatives.

You can learn more about the proposed rule by reading our previously published article.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Kilpatrick Townsend & Stockton LLP | Attorney Advertising

Written by:

Kilpatrick Townsend & Stockton LLP

Kilpatrick Townsend & Stockton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.