How SEC Issued Investor Bulletins Can Help Your Firm

For almost a decade, the Securities and Exchange Commission (“SEC”) has been issuing write-ups focused on providing investors with timely information on investment frauds and scams (“Investor Alerts”), along with education on various investment topics (“Investor Bulletins”) (both types referred to herein as “Investor Bulletins”).[1]

The topics covered in these Investor Bulletins generally fall under the categories of: (i) public companies and disclosures, (ii) broker-dealers and exchanges, (iii) mutual funds and exchange traded funds (“ETFs”), and (iv) registered investment advisers.  Below are examples of some of the topics:

  • Public Companies and Disclosures
    • What are Corporate Bonds?
    • Interest Rate Risk
    • Municipal Bonds – Understanding Credit Risk
    • Investing in an IPO
    • Beware of False or Exaggerated Credentials
  • Broker-Dealers and Exchanges
    • How to Open a Brokerage Account
    • 10 Questions to Consider Before Opening a 529 Account
    • Automated Investment Tools
    • Understanding Margin Accounts
    • How to Read Confirmation Statements
  • Mutual Funds & ETFs
    • Mutual Fund Fees and Expenses
    • How to Read a Mutual Fund Shareholder Report
    • Target Date Retirement Funds
    • Alternative Mutual Funds
  • Registered Investment Advisers
    • Investment Adviser Sponsored Wrap Fee Programs
    • Financial Professional’s Use of Awards, Rankings and Designations
    • How Fees and Expenses Effect Your Investment Portfolio
    • Opening an Investment Advisory Account
    • Performance Claims
  • General Investor Education
    • Be Aware of Paid-to-Click (PTC) Scams
    • Savings and Investing Basics for Military Personnel
    • Top Tips for Selecting a Financial Professional
    • Five Red Flags of Investment Fraud
    • Planning for Diminished Capacity and Illness
    • For Seniors – Protect Yourself Against Investment Fraud[2]

Investor Bulletins and other publications by the SEC help to educate investors so they can make informed decisions.  In this Risk Management Update, we discuss diverse ways investment advisers can utilize these write-ups to not only help inform clients about topics relevant to the types of investments recommended and advisory services offered by the firm, but also to address relevant disclosure obligations and enhance employee awareness.

The Structure of an Investor Bulletin

Investor Bulletins generally are presented as a short narrative.  After a brief introduction of the topic, the bulletin focuses on one or more pertinent risks, questions/steps for investors to consider, and/or other relevant information. For example, a recent Investor Bulletin covered the following topics:

Alternative Mutual Funds[3]

  1. Alternative mutual funds are not typical mutual funds
  2. How do alternative mutual funds compare to hedge funds?
  3. Before you invest
  4. Relevant information

Multiple Uses for Investor Bulletins

An obvious, but very appropriate way to use Investor Bulletins is to provide copies to your clients.  This can be accomplished in many ways, such as including the bulletin in new client welcome packets, forwarding via email as an educational communication and having links on your website or social media sites as an easy means for clients to readily locate this information. Not only do these methods help to keep clients informed, but moreover, helps convey to the clients and your regulators that you want to keep them informed.

Investor Bulletins can benefit both the firm and the client in a variety of ways.  Consider the following:

  • An Investor Bulletin Can Assist with the Identification of Risks

Advisory firms need to determine and address the risks associated with their advisory services and investments.  Performing periodic risk assessments is essential in preventing client harm or reputational and financial damage to the firm.[4]  Reviewing Investor Bulletins as part of the assessment process can help with identifying risks applicable to certain services and investment products.

  • Disclosure of Material Information

The SEC requires investment advisers to provide detailed disclosures to clients and prospects regarding their advisory services, including applicable risks and conflicts.  Investor Bulletins contain an abundance of descriptive information that can be considered with drafting Form ADV Part 2A.  For example, the SEC requires advisers to disclose in Form ADV Part 2A the types of fees and expenses, other than advisory fees, that effect a client’s account.  These would include, among others, mutual fund fees and expenses if you are purchasing these securities on behalf of clients.  When drafting, review and consider the information contained in the “Mutual Fund Fees and Expenses” Investor Bulletin.[5]  In addition, since Form ADV Part 2A is usually delivered electronically, you can also provide a link to the full Investor Bulletin. 

  • Frequently Asked Questions

Another method of keeping clients informed about the risks and conflicts surrounding investments and services, is providing FAQs.  These can be included in a firm brochure or as stand-alone pamphlets.  As mentioned above, many Investor Bulletins are structed to include some Q&A, which can be considered when creating your FAQs.   Providing information in this type of format can be very useful with retail and senior clients.

  • Employee Training

The core part of any business is its employees and providing them with the information needed to perform their duties is vital. There are a few ways Investor Bulletins can be used to educate employees, such as: (i) providing copies of applicable Investor Bulletins to new employees as mandatory reading, (ii) sending emails that contain new applicable Investor Bulletins when issued by the SEC, and (iii) discussing during annual compliance training.

Conclusion

In this current regulatory environment, transparency and education are key elements of an adviser’s compliance program.   Compliance personnel are tasked with the responsibility of ensuring firms provide adequate disclosures to clients, and that employees remain educated on the firm’s compliance requirements surrounding advisory service offerings. Therefore, consider the guidance provided by the staff through these Investor Bulletins and discuss whether and when this important information could be disseminated to your clients.

For more practical risk management tips, or for assistance with implementing the use of Investor Bulletins and other resources,[6] please click the button below to request time with a consultant, or call us at (619) 278- 0020.

contact core compliance

Author: Tina Mitchell, Lead Sr. Compliance Consultant; Editor: Michelle Jacko, CEO, Core Compliance & Legal Services (“Core Compliance”).  Core Compliance works extensively with investment advisers, broker-dealers, investment companies, hedge funds, private equity firms and banks on regulatory compliance issues.

This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer and/or tax professional.

[1] See https://www.sec.gov/investor/alerts

[2] See https://www.sec.gov/investor/seniors/guideforseniors.pdf.

[3] See https://www.sec.gov/oiea/investor-alerts-bulletins/ib_altmutualfunds.html

[4] See Core Compliance Risk Management Update “Why Investment Advisers Should Perform Risk Assessments At Least Annually” at https://cdn2.hubspot.net/hubfs/1826527/00129040.pdf?t=1515181522247

[5] See https://www.sec.gov/files/ib_mutualfundfees.pdf

[6] The SEC also issues Risk Alerts and other guidance to investment advisers regarding pertinent risk areas, which also should be considered.  Visit https://www.sec.gov/ocie for more information.