RIACF & LawVisory University Jeffrey Smith

In this episode, we are looking at SEC Rule 206(4)-7, “The Compliance Rule”. You might be asking yourself the question, “Isn’t this entire series about compliance?” The answer is yes. However, this rule has become known as “The Compliance Rule” since this rule requires the establishment of what the SEC views as the heart and foundation of any successful compliance program.

In this episode, we are looking at SEC Rule 206(4)-6, which relates to proxy voting. What is proxy voting? This is the act of someone other than the owner of the securities casting a vote for or against certain corporate actions on behalf of that security owner. The rule and rule amendments were designed to ensure that advisers vote proxies in the best interest of their clients and provide clients with information about how their proxies are voted.

In this episode, we are looking at SEC Rule 206(4)-5, which relates to political contributions. Unsavory investment advisors in cahoots with unscrupulous politicians and their operatives decided in the past to trade political favors namely in the form of political contributions for the act of directing state run retirement plans towards those asset managers that facilitated those political contributions. The way the SEC dealt with this problem was to create rules around the limits, monitoring and approvals of political contributions by asset managers and prohibitions on the management of government plans where someone made political contributions in the past.

In this episode, we are looking at SEC Rule 206(4)-3, which relates to solicitation arrangements. Under rule 206(4)-3 of the Advisers Act, it is unlawful for any SEC registered investment adviser to pay a cash fee, directly or indirectly, to a solicitor with respect to solicitation activities unless a few important conditions are met. It is important that SEC RIA’s understand and properly apply Rule 206(4)-3 if they choose to use solicitors to raise their AUM.

In this episode, we are looking at SEC Rule 206(4)-2, known as the Custody Rule, which states that it is a fraudulent practice for a registered investment adviser to have custody of client funds or securities, unless the adviser takes certain required steps to protect the assets.

In this episode, we are looking at SEC Rule 206(4)-1, also known as the Advertising Rule, which states that it shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of section 206(4) of the Act for any investment adviser, directly or indirectly, to publish, circulate, or distribute any advertisement that meets certain criteria.