The following are summaries of key developments in the investment management industry. Full articles covering these and other topics can be found by following this link.

Department of Labor Proposes New Regulations on Fiduciary Advice

The U. S. Department of Labor (DOL) has reissued long-awaited proposed regulations describing the circumstances in which a person who provides investment advice in connection with a retirement plan or individual retirement arrangement (IRA) acts as a fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. If adopted as proposed, the proposed regulations (referred to as the “investment advice fiduciary rules”) will significantly alter the landscape for how employee benefit plans, their fiduciaries and participants, and IRA holders receive investment advice. The DOL initially proposed a version of the controversial investment advice fiduciary rules in October 2010, but later withdrew the initial proposal due to concerns raised by the business community and lawmakers from both parties.

The new investment advice fiduciary rules broadly define a fiduciary to include any individual who provides investment advice for a fee for consideration in making a retirement investment decision to an ERISA-covered plan, a plan fiduciary, a plan participant or beneficiary, or an IRA holder.

In conjunction with the proposed regulations, the DOL issued a proposed new series of prohibited transaction exemptions and amendments to existing prohibited transaction exemptions. A new exemption likely to receive the most attention is referred to as the “Best Interest Contract” exemption. It provides relief for compensation received by investment advice fiduciaries as a result of the purchase, sale, or holding by a plan or IRA of certain investments. Among other conditions, the exemption requires the investment advice fiduciary to adhere to basic standards of impartial conduct.

The proposed regulations have a 75-day comment period, and we expect that several hundred comments will be submitted.

SEC Staff Publishes Money Market Fund Reform FAQs

In April 2015, the staff of the SEC's Division of Investment Management  published guidance in two separate releases (the Releases) to follow up on the money market fund reforms the SEC adopted in July 2014 (the 2014 MMF Release).  The first of the two Releases (the MMF FAQs) discusses interpretive questions that came out of the 2014 MMF Release. The second Release (the Valuation FAQs) discusses the valuation guidance for all mutual funds contained in the 2014 MMF Release.

The MMF FAQs address several topics, including:

  • Issues related to reorganizations designed to allow a fund to comply with the Rule 2a-7 amendments;
  • Issues related to qualifying as a retail money market fund, including the practice in which sponsors of retail money market funds provide seed capital to launch money market funds;
  • Stress testing of U.S. Treasury money market funds not being needed, as long as the fund board determines that the types of events covered by the tests are not relevant for the fund;
  • Floating net asset value (NAV) money market fund shares coming within the meaning of the term "cash items" for purposes of the statutory definition of "investment company;" and
  • Other topics, including website disclosure, statements in sales literature about maintaining a stable NAV, compliance dates, fees and gates, government money market funds, diversification, and asset-backed securities.

Although the 2014 MMF Release pointed out that fund boards may not delegate their responsibility to determine whether an evaluated price provided by a pricing service, or some other price, constitutes a fair value for a fund's portfolio security, the Valuation FAQs state that the 2014 MMF Release "was not intended to change the general nature of the board's responsibility" in this regard. The Valuation FAQs clarify that a fund board may appoint others to provide assistance in determining fair value, and a fund board may "may delegate to its appointee, subject to adequate oversight, specific responsibilities" to assist it in implementing valuation policies and procedures.

SEC Announces Whistleblower Awards to Compliance Professionals

The SEC announced on April 22, 2015, that it will award between $1.4 million and $1.6 million to a whistleblower who provided information to the SEC in an enforcement action against the whistleblower's employer. Notably, the award recipient is a compliance professional.  The award is the SEC's second such payment to an employee with internal audit or compliance responsibilities. The SEC announced the previous award—more than $300,000—in August 2014. In both situations, the SEC noted that the whistleblowers reported misconduct to the SEC after the company became aware of the misconduct and failed to take action. Andrew Ceresney, Director of the SEC’s Division of Enforcement, noted that "when investors or the market could suffer substantial financial harm, our rules permit compliance officers to receive an award for reporting misconduct to the SEC." These awards are of concern to many companies because compliance professionals, by the nature of their jobs, have access to sensitive information.

SEC Names a New Director of the Division of Investment Management

The SEC announced that David Grim has been named Director of the Division of Investment Management. Mr. Grim has been the division’s acting director since February, following the departure of former director Norm Champ. Mr. Grim originally joined the SEC in September 1995 as a staff attorney in the division’s Office of Investment Company Regulation, the SEC said in a news release. In January 1998, he moved to the division's Office of Chief Counsel and was named Assistant Chief Counsel in September 2007. Mr. Grim was appointed as deputy director of the division in January 2013, with responsibility for overseeing all aspects of its disclosure review, rulemaking, guidance, and risk monitoring functions.

To learn more about these developments and other investment management news, please contact a member of the Ballard Spahr Investment Management Group or the attorney with whom you regularly work.



Copyright © 2015 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

Related Practice

Investment Management