Ria Solicitation Agreement

So what constitutes a “bona fide effort”? In the acceptance press release, the SEC suggests that it would at least direct inquiries to some or all of the clients requested to determine whether the third-party attorney made inappropriate statements or otherwise violated the agreement with the consultant. This leads to a potentially unpleasant conversation with referred clients (“Hey, client, did the guy who referred you to me break an agreement you`ve never seen before?”), but unfortunately, this is the only example the SEC has provided. Annual certificates of compliance signed by outside counsel appear to be a more realistic way to demonstrate a “bona fide effort.” This means that, technically, if one of the partners, officers, directors or employees of an advisor (directly or by affiliation) is to receive cash compensation from the consulting firm for inquiries or recommendations from clients (for example. B, business development “bonuses” or internal revenue-sharing agreements to attract new clients), there should be a written agreement between the investment advisory firm and each of these in-house lawyers. Assuming the lawyer is not a regulatory troublemaker, cash payments for client inquiries can only be made under a written agreement to which both the counsel and the lawyer are parties, and are always prohibited unless they are made in one of three specific scenarios (i.e. three different types of RIA lawyer agreements): the title of the lawyer`s rule is actually “cash payments for client requests”. The use of “cash” is intentional because a lawyer must actually be compensated in cash for a solicitation or recommendation, and the Lawyer`s Rule does not apply if there is no cash payment (or cashless payment) to lawyers. (4) A statement that the lawyer will be remunerated by the investment advisor for his or her advertising services; The necessary disclosures should be provided at the time of issuance of the certificate or approval. The consultant or lawyer can provide the necessary information (according to the current rule of soliciting money, these disclosures must be made by the lawyer).

If the consultant does not provide the information, he or she must have reasonable grounds to suspect that the lawyer is doing so. In fact, if the person receiving money for client recommendations or solicitations is independent of the advisor and is not affiliated with them, four additional requirements come into effect. The rule also requires that a lawyer`s relationship be documented in a written agreement between the consultant and the lawyer. While the agreement is still required to manage the agreed activities and compensation terms, the consultant is no longer required to obtain written confirmation from each referred client that the client has received the required disclosures from the lawyer and that the lawyer is no longer required to provide the prospective client with a copy of the consultant`s brochure (Form ADV Part 2A). Therefore, the wording required in existing lawyers` agreements should be amended to reflect the steps the advisor must take to ensure that disclosures are made. Of course, the caveat to this is that revenue-sharing agreements for referrals can actually be a very “expensive” way to market new customers. However, for those who wish to get involved in the practice, RIAs are allowed to pay lawyers for client referral. However, a number of specific rules apply and additional information must be provided. And since a recent SEC risk alert highlights the SEC`s concern that RIAs are not fully compliant with disclosure requirements, it`s especially important for companies that use lawyers (or are considering using lawyers) to comply with the rules. The Investment Advisors Act of 1940 and related SEC rules do not require the attorney to register as an investment advisor as long as the attorney`s job is strictly limited to referring clients to a registered investment advisor pursuant to SEC Rule 206(4)-3. However, the majority of state securities regulators define the solicitation or referral of investment advisory clients as an investment advisory activity that requires the lawyer to be registered as an investment advisor or representative of an investment advisor.

A registered investment advisor reviewing a lawyer`s agreement should determine whether the proposed legal practice falls within the definition of a representative of an investment advisor by the crown securities regulator. With the increasingly competitive environment to attract new clients – especially those with substantial portfolios that can be managed – more and more consulting firms are starting to spend money on their business development efforts. Either to do outbound marketing and advertising, to organize “customer appreciation events” that encourage existing customers to bring a friend to the reference, to establish relationships with influential centers that can make recommendations. or simply pay for referrals with upfront money or ongoing revenue-sharing agreements. In fact, the SEC noted in the Notice of Adoption that “a person could be an attorney within the meaning of the rule when providing client names to an investment advisor, even if it does not specifically advise the client to retain that advisor [because a single recommendation is sufficient to trigger solicitation status, even if it is not a complete solicitation]”. The first additional requirement is that the written agreement between the third-party attorney and the consultant must contain the following specific elements: At least for in-house counsel, however, there are no explicit SEC requirements, which must include such an agreement. Thus, conceptually, this written agreement could simply be a signed job offer letter or an employment contract itself, describing the nature of the in-house lawyer`s share of income, bonus, or other compensation for his client generation activities. The third condition is that the investment advisory firm makes a good faith effort to determine whether the third-party lawyer has complied with its agreement with the advisor and has a reasonable basis to believe that the third-party lawyer has complied with it.

The RIA does not have to supervise a third-party attorney as long as it would do so with its own employee (as the SEC`s initial proposal would have required at the beginning!), but the firm still needs to make “good faith efforts” to determine whether or not the third party`s attorney is abiding by the agreement they signed. New Mexico exempts lawyers from registering as investment advisors or representatives of investment advisors as long as they receive only a one-time payment in exchange for the solicitation activity (see FAQ #2). This essentially means that a remunerated solicitation or recommendation that does not result in the requested or referred person actually becoming a client of the advisor would still trigger the requirements of the lawyer`s rule as a potential client. In other words, even unsuccessful requests and recommendations still matter if Cheddar (i.e., compensation) for that request or recommendation changes hands and therefore requires that the rules be followed and that related disclosures (as described below) be provided. The striking example of the impersonal advisory services used by the SEC in its notice of acceptance was a newsletter that a potential client could purchase rather than receive specially tailored wealth management services. Advisors can therefore pay lawyers to bring potential clients to the advisor`s website, blog posts, educational workshops, investment newsletters, etc., provided that no specially tailored advice is provided in this way. (But the requirements for lawyers` agreements and disclosure rules still apply, as the rules simply state that such agreements can be paid for at all.) Exceptions to this requirement occur when the person making the note/request is affiliated with the consultant or receives de minimis compensation (i.e., $1,000 or less or equivalent in the form of cashless compensation in the previous twelve months). Missouri, for example, does not very explicitly require lawyers to register as representatives of investment advisors. (See FAQ #7: “Q: Do investment lawyers need to be registered? A: NO. Investment advisors may pay a cash fee to a lawyer who is negotiating business as long as the lawyer does not provide investment advice and is disqualified. The fees must be paid in accordance with a written agreement between the consultant and the lawyer, and a copy of this agreement must be provided to the client prior to any consultation contact. However, the North American Securities Administrators Association (“NASAA”) sought to ensure a degree of uniformity by publishing a proposed model rule for lawyers in 2009 in the form of Model Rule 401(g)(4)-1 of the Uniform Securities Act of 1956 and Model Rule 404(a)-2 of the Uniform Securities Act of 2002. The proposed model rule largely follows the federal rule`s definition of legal disqualification, requires the same written agreement from the lawyer and the same confirmation from the client, and applies the same good faith compliance efforts.

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