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Office of Indiana Secretary of State Connie Lawson

Office of Indiana Secretary of State Connie Lawson

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Office of Indiana Secretary of State Connie Lawson

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  1. Office of Indiana Secretary of StateConnie Lawson Indiana Securities Division 2018 Investment Adviser Conference October 4, 2018

  2. Alex Glass Indiana Securities Commissioner

  3. The Indiana Securities Division Mission: Protect Investors and Maintain a Competitive Marketplace The Indiana Securities Division regulates: • Registered Investment Advisers & Investment Adviser Representatives • Broker-Dealers • Broker-Dealers and Broker-Dealer Agents • Mortgage brokers • Collection agencies • Franchisors • Continuing Care Retirement Contracts • Securities Products

  4. SENIOR SAVINGS PROTECTION

  5. Senior Savings Protection Basics • Ind. Code § 23-19-4.1 • Effective July 1, 2016 / Amended July 1, 2017 • Indiana was the fourth state to pass a law in this area

  6. Senior Savings Protection • Key Provisions • Mandatory reporting of potential financial exploitation for BDs and IAs • Ability of BD or IA to temporarily refuse distribution from an account • Ability of BD or IA to release records to APS • Immunity clauses for BDs and IAs

  7. Senior Savings Protection • Who Reports? • A qualified individual at a firm • Qualified Individual as defined at Ind. Code § 23-19-4.1-5, is an individual associated with a broker-dealer or investment adviser who serves in a supervisory, compliance, or legal capacity as part of the individual’s job

  8. Senior Savings Protection • Who Must be Contacted? • Ind. Code § 23-19-4.1-6 • Indiana Securities Division • Indiana Adult Protective Services • For information on how to contact: https://www.in.gov/sos/securities/4488.htm

  9. Senior Savings Protection • Refusing a Distribution • Ind. Code § 23-19-4.1-7 • Qualified Individual may refuse a request for a distribution if there is reason to believe that the requested distribution may result in the financial exploitation of the financially vulnerable adult

  10. Senior Savings Protection • Refusing a Distribution • If a distribution is refused, the qualified individual shall notify all parties on the account within 2 business days* • Notify Division and APS within 3 business days • * Not required to notify an individual if reason to believe the party has engaged in suspected exploitation of the financially vulnerable adult

  11. Senior Savings Protection • Refusing a Distribution • Firm has 15 business days after the date of initial refusal to investigate. (Time can be extended as outlined in the statute) • Firm must follow-up with Division, by email or mail, with final action after refusing a distribution

  12. Senior Savings Protection • Releasing Records to APS • Ind. Code § 23-19-4.1-9 • Firm may provide records to APS that are relevant to the suspected financial exploitation of a financially vulnerable adult

  13. Senior Savings Protection • Immunity Provisions • Ind. Code § 23-19-4.1-8 • Firms who in good faith report or hold a distribution are immune from administrative or civil liability • Firms who in good faith release or do not release documents to APS are immune from civil liability

  14. Senior Savings Protection • Additional Information • https://www.in.gov/sos/securities/4488.htm • Contact the Division at (317) 232-6681

  15. Cybersecurity Matthew C. Fink Compliance/Audit Investigator III Nevada Securities Division NASAA Cybersecurity Committee Vice Chair, NASAA Cybersecurity and Technology Project Group

  16. Registrations Doreen Fuery Senior Accountant

  17. I. Registration – RIA Firm II. Registration – Individual / IAR III. Common Deficiencies IV. Solicitors V. Renewals VI. Resources

  18. Registration / State-registered RIA (Firm) • RIA = Registered Investment Adviser • Current • FINRA - IARD and CRD systems • and • submit via email to dfuery@sos.in.gov (or hard copy via USPS) • Future • submit through an online SOS portal • https: (secure site) • Portfolio numbers will be assigned to each RIA firm • Instructions will be provided before going “live”

  19. Registration / State-registered RIA (Firm) • De minimus exemption • applies only to RIAs without a place of business in Indiana • 5 or fewer Indiana clients • Requirements for Registration • Form ADV, Parts 1 and 2 • Balance sheet of the RIA firm • All contracts or agreements • Books and Records Location Form • Fee - $100 • Form U-4 for each IAR • Fingerprints - maybe

  20. Registration / IAR (Individual) • IAR = Investment Adviser Representative • Requirements for Registration • Exams / Professional Designation / Waiver / Grandfathered • Disclosure review • Form U-4 • Fee - $25 • Fingerprints - maybe

  21. FINRA SIE Exam • (Securities Industry Essentials Exam) • Beginning October 1, 2018 • Summary • Good for 4 years (instead of 2) • No sponsor firm required • $60 fee • See FINRA Regulatory Notices: • www.finra.org/notices/17-30 • www.finra.org/industry/notices/18-27 • Questions: Contact FINRA directly

  22. Common Deficiencies • Balance Sheet • Advisory Fees • Other Business • Professional Designations • Funds

  23. Solicitors • State Registered - Required • • SEC Registered • Registration is required if: • Individual has a place of business in Indiana • AND • Individual meets Federal definition of IAR • OR • Individual is not a supervised person under the SEC’s definition. • NOTE: If registration is required, solicitors are not required to • be registered with the RIA for whom they solicit. • They only need to be registered. • See: • Ind. Code § 23-19-1-2(6) • Ind. Code § 23-19-4-4

  24. Renewals • FINRA’s 2019 Renewal Program Calendar: • www.iard.com/renewals.asp • SOS Website: • www.in.gov/sos/securities • Deadline to renew: December 17, 2018 • Registrants who fail to renew: • “unregistered” on January 1. Cannot lawfully conduct advisory business. • Complete registration process is required.

  25. Help is Available • Filing Forms and Paying Fees • FINRA / IARD Call Center • Phone: (240) 386-4848 • Email: iard@finra.org • Year End Renewal Calendar and FAQs: • www.iard.com/renewals.asp • North American Securities Administrators Association (NASAA) • www.nasaa.org • Indiana Secretary of State • www.in.gov/sos/securities • Laws, Regulations and Policies • www.in.gov/sos/securities/2409.htm

  26. Indiana Registered Investment Adviser Examinations Teaune Trice Examiner

  27. Indiana RIA Exams What to Expect • Two Types of Examinations: • Routine • For Cause

  28. Indiana RIA Exams • Routine exams are typically a four-part process • Pre-Exam • On-Site Exam • Post-Exam • Resolution

  29. Indiana RIA Exams • Routine exams are typically a four-part process • Pre-Exam • On-Site Exam • Post-Exam • Resolution

  30. Indiana RIA Exams What to Expect/Pre-Exam • Notification of upcoming exam typically done by e-mail at least two weeks in advance with a list of documents to have available • A request to delay an examination date is granted only on an exception basis and must be in writing • Some exams may be unannounced

  31. Indiana RIA Exams What to Expect/On-Site • During the on-site portion of exam the Division typically requests that the firm’s Point of Contact be available the entire day • Initial interview conducted by examiner • Tour of the office • Interview: questions about your business and business practices

  32. Indiana RIA Exams What to Expect/On-Site • Be prepared with requested documents readily available (See 710 IAC 4-9-7) • Have key personnel available to answer questions • Exit interview (optional) • The examiner explains what comes next. May be done onsite or may come after the actual visit, but not required.

  33. Indiana RIA Exams Books and Records • 710 IAC 4-9-7, the Indiana Administrative Code, gives the books and records required by the State of Indiana for Registered Investment Advisers • https://www.in.gov/sos/securities/2409.htm

  34. Indiana RIA Exams What to Expect/Post-Exam • Once examiner has left the office, the exam is not over • Frequently the examiner requests additional documents or information from the RIA or the custodian • May take several weeks depending on responses from RIA and/or custodian • Once post-exam work is complete, an exam report is prepared

  35. Indiana RIA Exams What to Expect/Resolution • No action letter • Deficiency/cautionary letter • Certain issues may be referred to enforcement for action or investigation

  36. Indiana RIA Exams Common Exam Deficiencies

  37. Assets Under Management(AUM)

  38. Calculating Your RegulatoryAUM When determining your regulatory assets under management, include securities portfolios for which you provide continuous and regular supervisory management services.

  39. How to Calculate? Securities Portfolios Value of Portfolio Must include the entire value of each securities portfolio that you provide continuous and regular supervisory or management services. If you provide continuous and regular supervisory or management services for only a portion of a securities portfolio, include as regulatory assets under management only that portion of the securities portfolio for which you provide such services. Consists of at least 50% securities You must include portfolios that are: • your family or proprietary accounts; • accounts for which you receive no compensation for your services; and • accounts of clients who are not United States persons

  40. Continuous and Regular Supervisory or Management Services

  41. General Criteria • Discretionary Authority • Provide ongoing supervisory or management services with respect to the account.

  42. General Criteria (cont.) • You do not have discretionary authority, but • Select or Make recommendations and such recommendations are accepted • You are responsible for arranging or effecting the purchase or sale.

  43. Factors you should consider. Terms of the contract • If you agree in an advisory contract to provide ongoing management services, this suggests that you provide these services for the account. Other provisions in the contract, or your actual management practices, however, may suggest otherwise. Form of Compensation • If you are compensated based on the average value of the client’s assets you manage over a specified period of time, that suggests that you provide continuous and regular supervisory or management services for the account.

  44. Factors you should consider. (cont.) If you receive compensation in a manner similar to either of the following, that suggests you do not provide continuous and regular supervisory or management services for the account • you are compensated based upon the time spent with a client during a client visit; or • you are paid a retainer based on a percentage of assets covered by a financial plan.

  45. Management Practices You may provide continuous and regular supervisory or management services if: discretionary authority; do not have discretionary authority, but you provide allocation services; allocate assets among other managers.

  46. Management Practices (cont.) You do not provide continuous and regular supervisory or management services for an account if: Provide recommendations, but have no ongoing management responsibilities; Provide advice on an intermittent or periodic basis.

  47. THE ANNUAL QUESTIONNAIRE

  48. The Questionnaire can be found online. • https://www.in.gov/sos/securities • PDF Version (Review Only).

  49. You’ve got some explaining to do!