New Business Offers RIA Compliance Services

An outgrowth of the firm RIA In A Box, the new firm Lexington Compliance aims to support registered investment advisers (RIAs) with management and review of compliance requirements.

Zachary Gronich, CEO of RIA In A Box, will head the new firm, according to a release from the firm.  Hovig Melkonian, director of compliance at RIA In A Box and former Goldman Sachs compliance consultant, will transition to Lexington Compliance to lead the compliance team.

“We will provide RIAs with the compliance oversight that is increasingly necessary in the post-Madoff securities climate,” said CEO Zachary Gronich. “As Congress works through new regulatory legislation, it is becoming increasingly clear that RIAs need a whole new level of compliance expertise and understanding and we can provide them with everything they need so they don’t have to worry.”

Based in Manhattan, with an office in Houston, Lexington Compliance said it offers three levels of compliance services for established RIAs:

  • For smaller firms that need a compliance expert on-call, Lexington will provide seven-day-a-week e-mail support from one of the Lexington compliance experts. This service level includes access to an online compliance forum where RIAs can read the latest rule and regulation proposals for the investment adviser world and determine how they will affect a practice.
  • For mid-sized firms that need to augment their internal compliance efforts, Lexington Compliance provides the e-mail support and online compliance forum participation as well as compliance review services for ads, Web site, business cards, seminars, and letterhead, plus compliance support for advisory documents. Lexington experts will also handle annual ADV amendments, including coordination of annual renewal fees to ensure firms remain registered.
  • For larger firms needing more comprehensive compliance oversight, Lexington Compliance provides all services included with the previous two options as well as a compliance expert assigned to each RIA firm, who will work directly with an RIA’s in-house compliance officer to ensure total compliance.  Also included are on-site compliance reviews conducted every six months by the director of compliance, starting with an initial on-site compliance review. The compliance expert will check in frequently to make sure each firm is on top of new rules, regulations, and changes in order to flag possible compliance issues, the firm said.

Lexington Compliance also provides on-site mock audit services for RIAs to help ensure all books, records, files, folders, policies, procedures, documents, and advisory activities are in compliance.

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More information is available at http://lexcompliance.com/.

SEC to Make Recommendations on 12b-1 Fees, Target-Date Funds

Advisers could be looking at some changes on target-date funds next year—and maybe a change in certain mutual fund fees.

Speaking at the Consumer Federation of America 21st Annual Financial Services Conference, Mary Shapiro, chairman of the Securities and Exchange Commission (SEC), told attendees that she had requested that SEC staff “early next year, present the Commission its recommendations on target-date funds.”  

“The ‘set it and forget it’ slogans of these funds resulted in shocked investors who were on the verge of retirement. It was a wake-up call for investors, employers and regulators, alike,” she said, noting that the SEC had held a joint hearing with the Department of Labor on the subject earlier this year.

“Since that hearing, our staff has been focused on the marketing materials related to these funds and the use of target dates in fund names. I believe this an area in need of reform for the benefit of America’s retirement investors, and I look forward to completing the work we have started,” Shapiro said.

12b-1 Fees

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In the context of protecting individual investors, Shapiro broached the subject of 12b-1 fees, which she described as “fees that are automatically deducted from mutual funds to compensate securities professionals for sales and services provided to mutual fund investors.”   

“The problem,” she said, “is that our investor may have no idea these fees are being deducted or who they are ultimately compensating.”  Then, calling for a “better approach,” she said, “When it comes to these fees, there is a need for more fundamental change than merely disclosure reforms and a name change. We must critically rethink how 12b-1 fees are used and whether they continue to be appropriate.”

By way of explanation, Shapiro said, “For example, do they result in investors overpaying for services or paying for distribution services that they may not even know they are supposed to be getting?”

She then told attendees that she had asked SEC staff for a recommendation on 12b-1 fees in 2010.  “In 1980, they may have made sense—but after 30 years of growth and change in the mutual fund market, it is past the time to reassess their need and their effectiveness,” she said.

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