Compliance isn't a headwind

At Foreside, we see regulation not as an obstacle, but as a catalyst for innovation.

The Brief: Over the course of the past year, Foreside recognized time and again that mutual funds were looking for a flexible way to advertise their new funds using pre-inception performance (PIP) data (already permitted for ETFs). With a higher demand for transparency, institutional investors have been requesting more pre-inception data. FINRA regulations, however, have prohibited it.

The Approach: : Foreside worked with FINRA, as well as counsel for one of our clients, to request new interpretive guidance that would permit passively managed open-end mutual funds to use PIP data under conditions similar to those required for ETFs. By leveraging relationships with our regulators, Foreside recognized this as an opportunity to innovate and shift the regulatory requirements rather than telling our clients “no, it can’t be done.”

The Result: After working closely with FINRA and our client’s counsel on the issue, Foreside successfully obtained an Interpretive Letter in January 2019 (now referred to as the Foreside Letter) permitting the use of PIP data in institutional communications of index based open-end investment companies that are distributed solely to institutional investors. This has created a completely new way for mutual funds to market their funds, bringing more transparency to investors.

CASE STUDY: GATEWAY TO THE U.S.
Finding the right entry point to the U.S. for your Firm.

The Brief: An international asset manager based in London that has been in business for over 80 years was looking to do business in the U.S. Their existing client base included both individual and institutional clients, and they managed numerous funds for investors primarily in Asia and Europe. The manager saw an opportunity with certain U.S. institutional investors and needed a solution to capitalize on that opportunity.

The Approach: Initially, Foreside provided chaperoning services to the client, through an affiliated Foreside broker-dealer, enabling the client’s non-U.S. based sales people to enter the U.S. and meet with institutional investors. The client then hired a small sales team in the U.S. Since chaperoning services are only available to sales people outside the U.S., the sales team could not rely on the chaperoning solution. Therefore, in addition to the chaperoning for non-U.S. sales persons, Foreside was able to offer registered representative services, associating the client’s U.S. sales team with a Foreside broker-dealer thereby enabling the sales team to market their products in the U.S.

The Result: The manager now has an active U.S. sales team of over 6 sales persons and is successfully raising assets in the U.S. Based on that success, the manager has begun looking at other opportunities in the U.S., including segregated mandates and perhaps a registered ’40 Act Fund. Foreside can assist with both opportunities, including registration with the SEC, compliance consulting support and our suite of services for ’40 Act Funds.

CASE STUDY: INVESTMENT ADVISOR CONSULTING
Foreside helps clients grow with regulatory confidence.

The Brief: A Registered Investment Advisor and their CCO approached Foreside for compliance support. The firm had had successful growth for over five years, but the CCO was also a Portfolio Manager and the firm was looking for added support for their compliance program.

The Approach:  After being hired, Foreside thoroughly examined the firm’s existing compliance program, including its policies and procedures, risk assessment, client agreements, Form ADV, and website. Foreside found that the policies and procedures, the backbone of a firm’s compliance program, were simply a modified version of boilerplate policies, and many of the policies adopted by the firm were not applicable to the firm’s business. In addition, Foreside found that the firm’s employees, including its CCO, were not aware of some of the requirements written into the firm’s compliance manual. Therefore, not only did the firm not have evidence of compliance with those policies, employees were simply not following them. Foreside further found that some policies were inadequate to meet regulatory requirements based on the firm’s business model. Foreside also found deficiencies in the firm’s client agreements, ADV disclosures, and advertising. Foreside assisted the firm with amending the entirety of its compliance program, related documents and disclosures so that the program not only met regulatory requirements, but was a program customized to the firm’s own business model and one that could truly be followed by the firm.

The Result: Surprisingly, within weeks of the client restructuring its compliance program, the SEC called to conduct an onsite examination of the firm. Foreside assisted the client throughout the examination process, advising the firm on each item requested by the SEC, and providing guidance on how to respond to requests and supplemental inquiries. Although the examination covered the time period when the firm’s compliance program was governed by its original compliance manual, which was found to be inadequate and deficient by the SEC, the exam resulted in no deficiencies due to the client’s recent restructuring of the firm’s compliance program. As a result of the client partnering with Foreside for compliance support, they not only experienced a clean regulatory exam, the firm’s compliance program was significantly strengthened. The client and Foreside continue to enjoy a strong relationship today, which includes monthly consulting calls and quarterly training on compliance matters delivered by Foreside to the client’s staff.