Investment Adviser Compliance National Compliance Services, Inc. 2014 Regulatory Update: Key Focus Areas for Investment Adviser Compliance Presented by: Kelli A. Capitano, Esq. 561.330.7645 - extension 207 kcapitano@ncsonline.com National Compliance Services, Inc. Delray Beach, FL www.ncsonline.com ©2014 National Compliance Services, Inc. 1

Discussion topics SEC Examination Initiatives and Priorities Examination Priorities for 2014 New Initiatives and Emerging Issues Enhanced Examination Activity by State Regulators Key Focus Areas for Compliance Programs Suitability – One size doesn’t fit all! Failure to Supervise – This can really get you in trouble! ADV Disclosure – Tell it like it is! Identity Theft – How to spot red flags…Don’t miss the signs! Social Media – The Do’s and Don’ts…“Like” it or not! 2 2

SEC Examination Initiatives IA Examination Priorities for 2014 Safety of Client Assets and Custody Marketing/Performance Allocation of Investment Opportunities Compensation Arrangements Filings & Disclosure New Initiatives and Emerging Issues Presence Exams Never-Before Examined Advisers Wrap Fee Programs Alternative Investments Request for Funding Via User Fees (11/22/2013) 3 3

Enhanced Exam Activity by State Regulators *NASAA 2013 Coordinated Investment Adviser Examinations, Investment Adviser Operations Project Group, October 2013 4 4

Suitability Document the Investment Process Maintain Documentation Evidencing Basis for Recommendations Specific to Client Incorporate Procedures for Initial and Ongoing Assessments Document Due Diligence for Alternative Investments 5 5

Failure to Supervise Duty to Supervise Under Section 203(e)(6) of the IA Act of 1940 Increased Regulatory Action Supervisors and Supervisory Process Should be Accurately Identified in Policies and Procedures IAR Supervisors Should be Identified in Form ADV Part 2Bs 6 6

Form ADV Disclosure Top Deficiency Area for Examinations Disclosure Must Be Accurate and Consistent with Marketing Materials, Agreements, Policies and Procedures, etc. Implement Policies and Procedures to Periodically Review Disclosures Pay Attention to Critical Focus Areas 7 7

April 15, 2014 SEC Risk Alert: OCIE Cybersecurity Initiative Identity Theft April 15, 2014 SEC Risk Alert: OCIE Cybersecurity Initiative Over 50 registered BDs and RIAs will be examined by the SEC, focusing on areas related to cybersecurity Red Flags Rule Includes advisers with authority to withdraw assets and direct payments to third parties upon the client’s instruction. Policies and Procedures Should Be Designed to: Identify; Detect; and Respond appropriately to red flags 8 8

Advertising Top Area for Compliance Deficiencies Social Media Content Must Always Comply with Advertising Standards Recognizing False or Misleading Content Prohibition on Testimonials Incorporating Disclosures Examples: Recent Advertising Deficiencies 9 9

Use of Social Media RIAs must consider antifraud, compliance, and recordkeeping provisions 3/2014 SEC Guidance Update on Testimonial Rule and Social Media Provides guidance on testimonial issues specific to: Third party commentary Advertisements on independent social media sites IA references to commentary on independent social media sites Client lists Fan/community pages 10 10

Use of Social Media Non-exhaustive list of factors that RIAs should consider when evaluating the effectiveness of its social media policies and procedures: Usage Guidelines/Content Standards Monitoring /Frequency of Monitoring Approval of Content Criteria for Approving Participation Training Certification Functionality Personal/Professional Sites Information Security Firm Resources 11 11

National Compliance Services, Inc. Contact Information Kelli A. Capitano, Esq. 561.330.7645 - extension 207 kcapitano@ncsonline.com National Compliance Services, Inc. Delray Beach, FL www.ncsonline.com 12 12