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Welcome to the seventh edition of the Foreside Connections e-Newsletter! Foreside Connections serves as a powerful tool for enhancing the ties between Foreside and our valued clients. The aim of this quarterly publication is to keep you informed of new initiatives, corporate updates, upcoming events, and both industry and regulatory trends. We hope you find this publication a valuable resource and welcome your suggestions and feedback.
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Letter From The President
Thank you for your continued confidence in Foreside. We are pleased to announce the successful close of Lovell Minnick Partners' investment in Foreside as of Tuesday, May 31, 2017.
As provided in our client notifications earlier this year, Lovell Minnick has acquired a majority stake in Foreside. Rich Berthy will remain a significant minority investor in Foreside and will continue to serve as its Chief Executive Officer. As noted previously, there will not be any day-to-day changes impacting clients, and with Lovell Minnick's capital base, Foreside will continue to have the opportunity to invest in additive technology, incremental personnel, and complementary services. This transaction will not impact the services Foreside currently provides to you. Service teams and service level standards remain intact. All clients will continue to receive the same high-quality services they have received from us in the past, delivered by the same core team of professionals.
As we near the end of the second quarter, we continue to focus on enhancing our technology capabilities across many aspects of our distribution and compliance services. We are pleased to announce the launch of our new website in July as well as other technology-related initiatives in 2017. In addition, Foreside is expanding our geographical presence, with our London office opening coming in the third quarter of this year.
Finally, we continue to develop new partnerships and services for global distribution and compliance solutions. We welcome the opportunity to discuss these initiatives further with your team. As always, we remain committed to solutions that allow our clients to focus on their core business without sacrificing distribution and compliance best practices. Thank you again for your continued support.
David Whitaker
President
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Foreside Opens London Office
Foreside is pleased to announce the newest reason to visit the city on the Thames: the opening of its new London office, Foreside Global Services Limited, on June 15, 2017. Our St. James address puts Foreside, geographically, front and center among clients, banks, and investment managers. We are excited to have a presence on the ground to better service our European clients and to serve as a resource for our U.S. clients looking to expand their footprint in Europe. We also hope to provide more opportunities for European asset managers to access the U.S. market and our presence there will undoubtedly make that transition and growth seamless for all involved.
Jennifer Hoopes, Foreside's General Counsel and Head of Global, will be spearheading this effort and will be relocating to London this summer. She plans to travel extensively throughout the U.K. and the rest of Europe as she introduces Foreside to a broader audience.
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Foreside Partners with Delta Data
F
oreside, in partnership with Delta Data, is pleased to offer a robust, comprehensive solution designed to help asset managers gain added insight into their Intermediary relationships and distribution fees. Delta Data's Oversight Solution Platform is a suite of oversight products that leverage distribution transparency data integrated with reporting, analytics, and counterparty management. This platform allows Mutual Fund companies to
increase the number of firms they review as well as increase the detail in which they review them. Also, the solution helps asset management firms create real-time dynamic board reports and
guards against incurring any SEC fines related to "Distribution in Guise."
Delta Data is a proven thought leader in the asset management arena and offers the industry's only complete oversight platform. Each of the modules is described in detail below:
DART (Data, Analytics, Reporting, and Transparency)
DART, Delta Data's compliance product for fund companies, provides automated monitoring and analytics for complete 22c-2, sub-accounting, omnibus, and fund policy trade monitoring. Through a hosted environment, fund companies manage the request/response process with their intermediary relationships, analyze the data returned, monitor for market timing events, and report on excessive trading activity. Through an analytic workflow, violations are identified, SSN's are setup on a watch list, and sanctions are applied to individuals with repeated offenses.
Distribution Oversight and Counterparty Management
Intermediary Oversight is one of the hot topics in the industry today. SEC sweeps are taking place, and new compliance rules and regulations are in effect. Delta Data's Intermediary Oversight platform gives you the ability to quantitatively and qualitatively evaluate and track your counterparty relationships in one portal, allowing you to manage your oversight activities. In addition, this module serves as a CRM tool that is pre-configured with all the registered fund distributors and is built exclusively for all of your intermediary/counterparty relationships.
Fee Manager
Delta Data's Fee Manager tool allows you to verify accurate fee payments by comparing contractual based fee calculations against an invoice. You can focus on errors, while straight-through processing with configurable tolerances allows auto-approval of correct invoices. The validation that payments are being taken out of the correct "buckets"
ensures that you are compliant with the SEC's "Distribution in Guise" rule.
Foreside and Delta Data will be hosting a demo of their
Oversight Solution Platform on Wednesday, July 19th at 4:15 PM. Event information will become available in the coming weeks.
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Foreside Connections Call
Merrill Lynch - Platform Rationalization Overview and Impact
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Marybeth Swisher
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Foreside proudly continues the quarterly "Connections" conference call series for 2017. Partnering with innovated industry experts, we aim to cover a broad spectrum of industry topics, to assist you with the asset growth of your business. On Wednesday, April 19th we hosted the 2nd Quarter Connections conference call with guest speaker Marybeth Swisher of Merrill Lynch's Managed Solutions Group.
Mrs. Swisher provided critical insight into Merrill's rationalization process and new research coverage model.
Q3 Quarterly Connections Call
Foreside will be hosting our Q3 Quarterly Connections Call with an esteemed guest panel on best practices working with the RIA/family office space. Please join Mark Yusko, Chief Executive Officer and Chief Investment Officer of Morgan Creek Capital Management, James McGrath, Partner and Director of Research at Forbes Family Trust, and Roger Scheffel, Principal and Portfolio Manager at Wilbanks, Smith & Thomas for an informative discussion on working with key investment research teams. They will discuss best practices penetrating these teams including keeping them up to date on products, performance and what differentiates your strategy from the rest.
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FINRA T+2 Rules Are Approved
I
n May 2017, Regulatory Notice 17-19
,
FINRA announced the SEC approval of a variety of its proposed rule amendments relating to the upcoming move of the U.S. securities markets to the T+2 settlement cycle.
To coincide with the effective date of the revisions to SEC Rule 15c6-1(a), these amendments will take effect on September 5, 2017, and relate to the following FINRA rules:
- Rule 2341 (Investment Company Securities);
- Rule 11140 (Transaction in Securities "Ex-Dividend", "Ex-Rights", or "Ex-Warrants");
- Rule 11150 (Transactions "Ex-Interest" in Bonds Which Are Dealt in "Flat");
- Rule 11210 (Sent by Each Party);
- Rule 11320 (Dates of Delivery) (This provision includes the definition of "Regular way," and refers to the new two business day delivery cycle);
- Rule 11620 (Computation of Interest);
- Rule 11810 (Buy-In Procedures and Requirements); and
- Rule 11860 (COD Orders)
These were previously discussed in amendments in December 2016, at the time of their proposal. FINRA has also issued an investor alert, entitled "T+2 is Coming", to help explain to investors the impact of the upcoming market-wide changes.
For more information regarding this change, please reach out to Jennifer DiValerio at (484) 320-6237 or
jdivalerio@foreside.com.
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Foreside Updates
Northern Trust Distribution Summit (April 26, 2017)
Representatives from Foreside joined Northern Trust in London on April 26th to provide a distribution and regulatory overview of the U.S. market to European asset managers. They looked to help managers gain perspective on U.S. market size, trends, and other considerations, including fund vehicle options, pros and cons of various U.S. distribution channels, selling through intermediaries and consultant relations, and U.S. regulatory developments.
Morningstar Investment Conference (April 26-28, 2017)
Morningstar's Annual Investment Conference was held April 26
th
- 28
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, earlier than the usual June time frame, but not lacking success in bringing together the investing industries most innovative minds. Keynotes this year were Jack Bogle, Blackrock's Larry Fink, and Morningstar CEO Kunal Kapoor.
Foreside's National Account Manager Kerric Kynard was on-site and caught up with many industry colleagues over the packed three days of speakers, meetings, and events. If you did not have a chance to speak with Foreside's National Account Team at the conference, please reach out to your Relationship Manager, and they would be happy to set up time for you to do so. For more information on the Morningstar's Investment Conference click
HERE.
ICI 2017 General Membership Meeting (May 3-5, 2017)
Chuck Todd, Donna Rogers, and Jennifer DiValerio attended the 2017 General Membership Meeting, the premier annual gathering of the global fund industry in Washington, DC. This year's conference featured industry
fund leaders, a number of panels focusing on industry priorities and trends, including technologies, regulatory developments, and diversity as well as a regulatory overview by ICI President and CEO Paul Schott Stevens.
2017 FINRA Annual Conference (May 16-18, 2017)
Members of Foreside's compliance team attended the 2017 Annual FINRA conference in Washington, DC. With more than 50 sessions available, Foreside learned about the latest regulatory developments and FINRA priorities and gained practical guidance on today's top compliance issues and how to maintain an effective compliance framework. For more information on this conference, click
HERE.
ALFI London Conference (May 23, 2017)
Foreside attended the ALFI London conference on May 23rd, 2017. This conference was a gathering of asset managers and service providers focused on Luxembourg as a fund domicile, as well as fund distribution, fintech and the implications of Brexit.
Irish Funds Annual Global Conference (May 25, 2017)
Jennifer Hoopes, Foreside General Counsel and Head of Global, attended the 2017 Irish Funds Annual Global Conference in Dublin, Ireland on May 25th. Jennifer was able to gather with asset managers and service providers around the world to discuss issues related to Irish fund structures, fund distribution, and Brexit.
Confluence Connect 2017 (June 11-13, 2017)
Chuck Todd, Business Head of Fund Officer & Compliance Services attended the 2017 Confluence Connect 2017 Conference in Pittsburgh, PA. Chuck was a panelist on a discussion around Data, Technology & Operating Model: Leveraging a Platform Approach.
Pershing INSITE 2017 (June 14-16, 2017)
Foreside attended the Pershing INSITE conference on June 14-16, in San Diego, CA. During our time there we were able to hear from keynote speakers, meet with clients, network with a host of individuals and learn about new things happening at
Pershing
and
affecting
their RIAs. For more information on this conference, click HERE.
Strategic Insights Fund Trends 2017 Conference (June 20-21, 2017)
Foreside will again be in attendance at the Strategic Insight Fund Trends Conference (SIFT) in New York City, June 20-21st. Each year the team has found the event to be a successful forum to learn from key platform distribution executives as well as an opportunity to dive deeper into the industry trends shaping the distribution landscape for both mutual funds and ETFs. This year in attendance will be Steve Mintos, Managing Director and Sonja Formato, National Account Manager. We hope to see you there. For more information on the Strategic Insights Fund Trends Conference click HERE.
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Financial Fun Fact
Before the ticker tape and the bell, the earliest stock traders of NA/NY chose for their exchanging activities a nice, shady spot under a buttonwood tree outside what is now 68 Wall Street. As time went on (more than 100 years), the brokers decided to set down some basic rules. On May 17, 1792, twenty-four of them wrote and signed America's first trading regulations. The "Buttonwood Agreement" was only two sentences long. The brokers agreed that:
1.) They were only allowed to trade with each other (they didn't like auctioneers), and
2.) The commissions on trades would henceforth be 0.25%
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The Buttonwood tree outside of 68 Wall Street.
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DOL: What You Need to Know
Originally, the DOL rule was to begin on April 10, 2017, yet this was delayed until June 9
th
to allow for further consideration of the ruling. In an op-ed article which appeared in the May 23rd issue of the Wall Street Journal, Labor Secretary Alexander Acosta said that the fiduciary rule would partially go into effect on the June 9
th
date, with full and final implementation on January 1, 2018. T
he Department of Labor says it will not enforce any parts of the rule in its entirety until January 1, 2018, "as long as fiduciaries are acting in good faith."
Certainly, the impacts of this rule will continue to reverberate throughout 2017 and beyond, as the rule continues to take shape. Regardless of the final fate of the rule, the investment industry will continue to experience fundamental shifts in the way in which business is done, both now, and in the future. Many of these changes have already begun to impact the way in which asset managers conduct business, with more to come. Moreover, as the landscape continues to change, it is imperative that fund managers pay attention to the shifting climate. Here are two notable changes to be aware of:
New Share Classes (T shares and Clean shares)
In a previous Foreside Connections article, we included a description of the new T share
,
which will come more into focus during the period between June 9
th
and January 1, 2018. Class A and C shares will conceivably begin to experience shockwaves as more distribution intermediaries begin to shift their requirements (see below). As an example, in the May 24
th
issue of Investment News, it was reported that Wells Fargo Advisors, home to over 15,000 financial advisors, has made the decision to restrict new mutual fund purchases in brokerage retirement accounts to T shares starting in June. Clients already in A and C shares will not have to sell them, but any new fund sales will occur in the new T share class. Surely other firms will consider this alternative in the remaining months of 2017.
Broker-Dealer Assets Will Continue to Move to Fee-Based Accounts
It is no secret that over the past several years investor assets have been shifting from the brokerage model to the advisory fee-based models at most intermediaries. The DOL Fiduciary Rule will continue to speed up this transition. Morgan Stanley Wealth Management had $18.8 billion in fee-based asset flows in the first quarter of 2017, a 219% increase over the $5.9 billion in Q1 2016, according to the firm's most recent earnings release. They also had $927 billion in total fee-based client accounts, a 16% jump over the same period. Edward Jones, which has traditionally been very supportive of its brokerage model, saw assets in its advisory programs increase by 46% during the year to $207 billion, according to a 10-K filed in April for The Jones Financial Companies, the parent of Edward Jones. This is a trend that has been mirrored at a number of firms over the past year and will increase in the future.
Continued vigilance is necessary during these times of change. Certainly, there will be unintended consequences during this period, which will require thoughtful consideration of your firm's distribution plans. Please do not hesitate to engage the members of Foreside's National Accounts team for further support and guidance at
nationalaccounts@foreside.com.
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Changes Coming to FINRA Qualification Exams
Big changes are coming to the Financial Industry Regulatory Authority ("FINRA") qualification exams. FINRA recently announced that it had
filed a proposal to streamline exams and provide opportunities for individuals to demonstrate a fundamental knowledge of the industry before joining a firm by creating a Securities Industry Essentials Exam ("SIE"). The SIE does not need to be sponsored by a Broker-Dealer and will allow an easier entry for an individual with no securities experience to enter the industry. The SIE will be a pre-requisite for all other securities qualifications and will require a focused top-off exam to be permitted to function in a capacity that requires registration. The good news is because the SIE exam will cover much of the material that is covered in the existing exams, the "top off" exams (i.e. Series 6, Series 7) will be considerably shorter than the existing exams today.
As we move toward the expected 2018 exam implementation, Foreside will continue to keep you updated with new information from FINRA regarding their progression and the release of these new exams.
For more information regarding this change, please reach out to Jennifer DiValerio at (484) 320-6237 or jdivalerio@foreside.com.
FINRA Regulatory Notice 17-18 Social Media and Digital Communication
This notice provides guidance on social networking websites and business communications regarding the application of FINRA rules governing communications with the public and digital communications, in light of emerging technologies and communication innovations.
Please reach out to the Advertising Compliance Tea relating to advertising materials or the Supervision Team at
supervision@foreside.com with specific questions regarding registered representative activities. Click
HERE to learn more.
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FINRA's Capital Acquisition Broker Rules Offer Reduced Regulatory Burdens
FINRA's Capital Acquisition Broker ("CAB") rules took effect on on April 14, 2017. CABs are defined as firms engaged in limited activities including advising companies and private equity funds on capital raising and corporate restructuring and acting as a placement agent for sales of unregistered securities to institutional investors under limited conditions. As such, FINRA applies a narrower rule set to firms if they meet the CAB definition and decide to be governed by these rules.
Although some existing FINRA requirements will continue to apply under the CAB rules, the benefits include, among other things, limiting the applicability of certain supervisory, financial, and operational rules. For example, CABs are not subject to requirements to conduct annual compliance meetings and office inspections. CABs are subject to a streamlined communications rule which essentially prohibits false and misleading statements and are not subject to the FINRA Rule prohibiting the use of predictions or projections of performance.
However, with respect to placement agents, the permitted activities are somewhat narrow. Despite comment letters urging expansion of the CAB rules definition of "institutional investors" to include accredited investors, FINRA concluded that it was not appropriate to do so because those investors may not have the required financial sophistication to understand the risks associated with investments sold by CABs. Therefore, the institutional investor definition limits private fund placement activity to funds formed under Section 3(c)(7) of the Investment Company Act because those funds can only be purchased by "qualified purchasers." Furthermore, CABs are required to comply with many of the same requirements as other Broker-Dealers. For example, principals and registered reps are subject to the same registration qualification, and continuing education requirements as other FINRA member firms and some additional restrictions, such as an absolute prohibition on CAB associated persons engaging in private securities transactions.
In spite of these limitations, some firms may benefit from the reduced regulatory burdens imposed by the CAB rules. Foreside provides consulting services to firms seeking to register as a Broker-Dealer under the CAB rules or the FINRA rules that govern other firms.
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Investment Company Reporting Modernization - Are you ready?
In October 2013 the Securities and Exchange Commission ("SEC") voted to adopt changes to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and Exchange Traded Funds (ETFs).The new rules will enhance the quality of information available to investors and will allow the SEC to collect and use data reported by funds more effectively. Additionally, they will promote effective liquidity risk management across the open-end fund industry and will enhance disclosure regarding fund liquidity and redemption practices.
The new rules require mutual funds, ETFs, and other registered investment companies to file new form types Form N-PORT and Form N-CEN. These new form types will pose unique challenges to those impacted as firms will need to collect considerably more data at shorter intervals with a more demanding timetable for filing. The new taxonomy includes new and different derived data, a need for timely review and sign-off, and the need to collect and validate data from multiple sources. Additionally, to facilitate the intended expansion of the volume of information, these new forms must be submitted in extensible markup language (XML) format. The XML format will assist the SEC staff in oversight of funds and assist in examination, enforcement, and monitoring as well as new policy formulation.
Form N-PORT requires funds, other than money market funds, to provide portfolio and position-level holdings data to the SEC on a monthly basis, no later than 30 days after the close of each month. As a result of implementing Form N-Port, on August 1, 2019, the Form N-Q will be rescinded which creates a gap to the principal executive and financial officers' certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 and Section 302 of the Sarbanes-Oxley Act of 2002 (Section 302 Certifications). To close this gap, the SEC amended the Section 302 Certifications filed with Form N-CSR for a fund's second and fourth fiscal quarters to cover the entire semi-annual period covered by those filings.
Form N-CEN requires funds to report certain census-type information to the SEC on an annual basis within 75 days of the fund's fiscal year end. The information will be reported in a structured data format which will allow the SEC and the public to analyze the information better. Form N-CEN will replace Form N-SAR, the form currently used to report fund census information. There are a few key differences between the reporting calendar for Form N-SAR and the updated Form N-CEN. Form N-SAR was reported semi-annually within 60 days after the end of a fund's fiscal year and second fiscal quarter, and annually for UITs 60 days after the close of the calendar year. Form N-CEN requires a fund to file within 75 days of its fiscal year-end. A fund with numerous series with varying fiscal year ends must file a separate report including all series of the fund with the same fiscal year end. The last filing date for Form N-SAR is May 31, 2018.
The new rules also require enhanced and standardized disclosures in financial statements and will add new disclosures in fund registration statements relating to a fund's securities lending activities.
Compliance dates for the Investment Company Reporting Modernization are based on asset size. Fund companies with $1 billion in net assets will be required to begin filing their reports on Forms N-PORT and N-CEN after June 1, 2018, while fund complexes with less than a $1 billion in net assets will not be required to begin filing on Form N-PORT until after June 1, 2019.
Foreside's Treasurer Services team would be happy to assist you in meeting the new reporting requirements. Our team works with a broad array of service providers which allows us a unique viewpoint from which we can develop best practices.
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Upcoming Events
Foreside will be attending the following events in Q3 2017:
- Opal Public Funds Summit East 2017 (July 24-26, 2017), Newport, RI
- LPL Focus 2017 (July 30, 2017), Boston, MA
- Morningstar ETF Conference (September 7-9, 2017), Chicago, IL
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Foreside Gives Back
Foreside is partnering with Spurwink for their annual Brews and Backpacks event on Thursday, June 22nd, 2017. Foreside's Portland employees will assemble backpacks with care items for children entering foster care, child abuse treatment facilities and residential programs. Foreside will also be donating 200 notebooks and colored pencils to this event.
Spurwink is a national organization which provides behavioral health and education services for children, adults, and families. To learn more about this organization, please click
HERE.
Foreside was a lane sponsor for the Raymond James Financial Nintendo Wii Bowling tournament on Wednesday, June 14
th
. This annual event helps support the Junior Achievement Organization.
Junior Achievement is an innovative partnership between the business community, educators and volunteers. As the world's largest organization dedicated to empowering young people to own their economic success in the global marketplace, Junior Achievement provides its partners with a skilled future workforce, awareness opportunities and a heightened profile in the community as a leader in corporate social responsibility.
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Industry News/Resources
For links to recent industry news, resources, and insightful commentary, please click
HERE
.
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About Us
Distribution and Compliance Professionals dedicated to your success.
Foreside is committed to delivering innovative services that not only meet current requirements but also anticipate emerging regulatory and marketplace developments. Clients rely on us to provide the information, operational support and strategic advice that are needed to thrive in today's complex arena of investments, distribution, compliance and risk management. We collaborate with recognized service providers to ensure our clients receive informative and quality services. Foreside is not affiliated with any of its partner service providers. For more information about Foreside, including service offering overview, staff bios, current industry news and upcoming industry conferences, visit our website at
www.foreside.com
.
Sincerely,
Emmy Bernard
Managing Director, Head of Relationship Management
Foreside Financial Group, LLC |
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