OCIE issues risk alert on Cash Solicitation Rule
21 November 2018
The SEC’s Office of Compliance Inspections and Examinations (OCIE) have issued a Risk Alert highlighting the most common issues relating to the Cash Solicitation Rule. If you’re an adviser working with third party solicitors, now is a good time to review your policies and procedures to make sure you comply.
The risk alert, published 31 October 2018, reflects on issues uncovered in a review of the deficiency letters from completed investment adviser examinations over the past three years. It’s intended to be used as guidance in identifying potential issues of compliance for investment advisers, investors and other market participants.
In most cases, investment advisers registered under the Advisers Act are prohibited from paying a cash fee to anyone who solicits clients for them unless the agreement complies with the Cash Solicitation Rule (Rule 206(4)-3) under the Investment Advisers Act of 1940).
Frequent compliance issues related to the Cash Solicitation Rule
The most common issues found by the OCIE include:
- Solicitor discloser documents – Advisers whose third-party solicitors did not provide documents to prospective clients or provided documents that didn’t contain all the information required by the Cash Solicitation Rule.
- Client acknowledgements – Advisers not receiving timely signed and dated receipt of the adviser brochure and the solicitor disclosure document. Staff also observed advisers that received client acknowledgements, but they were undated or dated after the clients had entered into an investment advisory contract.
- Solicitation agreements – Advisers paying cash fees to a solicitor without a solicitation agreement in effect or following an agreement that didn’t contain the right provisions.
- Lax effort by advisers to ensure compliance – Advisers not making what the OCIE considered a bona fide effort to find out whether third-party solicitors complied with solicitation agreements.
Advisers who have agreements with third party solicitors should take note of the OCIE’s specific observations and generally assess whether their policies and procedures, disclosures and agreements comply with the Cash Solicitation Rule.
We can help
Regular monitoring of your policies and procedures is critical to ensure you remain compliant. As part of our ongoing support services, we can schedule periodic reviews of various compliance protocols. We will work with you to develop a monitoring program that works for your business, while also taking into account your specific risks and the SEC’s exam priorities. If you have any questions on your firms compliance with the Cash Solicitation Rule or any other compliance issue get in touch!