Monday, January 9, 2017

Annual FINRA Entitlement User Accounts Certification

It is that time of year again!

FINRA requires that the Super Account Administrator ("SAA") for your advisory firm log into your account to validate the users that have access to your filing, billing and related information. AdvisorAssist serves as the "Alternate Administrator" for your FINRA account. Typically, your Chief Compliance Officer ("CCO") serves as the SAA.

The AdvisorAssist team has mailed our instructions to certify and how to communicate back with us. If you have any questions, please contact us at support@advisorassist.com.

Thank you.
The AdvisorAssist Team


Below is the email you would have received from FINRA:

Subject: Annual FINRA Entitlement User Accounts Certification - [Your Firm]

Start Date: 1/9/2017
Due Date: 2/9/2017

One of the responsibilities of FINRA Super Account Administrators (SAAs) is to ensure that users in their organization who require access to applications in the FINRA Entitlement Program to perform their job responsibilities are properly entitled to these applications and the sensitive data that these applications may contain. While FINRA encourages administrators to review user accounts periodically throughout the year and to delete accounts when user terminate, FINRA conducts an annual user accounts certification program to enhance this review process. The purpose of this email is to notify you that today begins FINRA's 2017 Entitlement User Accounts Certification Period.

During this 30-day certification period, you will need to review your organization's user accounts to determine that:

  • each user has a continuing need to access FINRA application(s) on the organization's behalf;
  • each user is entitled only to the applications and privileges needed to perform current job responsibilities; and
  • only users who require access to sensitive data (e.g., Criminal History Record Information, social security or tax identification numbers, dates of birth) are entitled to access this type of data.

For your convenience, you can download your user account information into a report to send to other individuals within your organization to confirm individual's appropriate entitlement, including access to applications, privileges, and sensitive data. FINRA recommends that you certify your users on the same day you request the download to prevent having to perform a subsequent review of your users as the entitlement data may have changed since the download was requested.

If user accounts are not certified within the 30-day certification period, the capability to create, edit and clone accounts within an organization will be disabled for all Administrators and will remain disabled until an organization completes the certification process. Organizations that fail to certify their users will be referred to the appropriate regulator for follow up.

To begin the certification process, please click here. Note: At the beginning of the year while all firms are participating in the SAA certification process, user administration system response time may be a little slower than usual.

Additional entitlement information can be found on the FINRA Entitlement Program page.

For questions concerning the certification process, please contact the Gateway Call Center at:
(301) 869-6699 (Broker/Dealers)
(240) 386-4848 (Investment Advisers)
Thank you.

Sunday, January 1, 2017

Calculating Regulatory Assets Under Management (2017)

Advisors must quantify the amount of assets they manage. This year Advisors must calculate Regulatory Assets Under Management, which is slightly different from other asset calculations you are used to. Here are the key components to the calculation:

Securities Portfolio

Include the securities portfolios for which you provide continuous and regular supervisory or management services as of your fiscal year-end (typically December 31st).

An account is a securities portfolio if at least 50% of the total value of the account consists of securities. For purposes of this 50% test, you may treat cash and cash equivalents (i.e., bank deposits, certificates of deposit, bankers acceptances, and similar bank instruments) as securities.

You must include securities portfolios that are:

  1. Your family or proprietary accounts;
  2. Accounts for which you receive no compensation for your services; and
  3. Accounts of clients who are not United States persons.

For purposes of this definition, treat all of the assets of a private fund as a securities portfolio. For accounts of private funds, include in the securities portfolio any uncalled commitment pursuant to which a person is obligated to acquire an interest in, or make a capital contribution to, the private fund.

Value of Portfolio

Include the entire value of each securities portfolio for which you provide continuous and regular supervisory or management services.

If you provide continuous and regular supervisory or management services for only a portion of a securities portfolio, include as regulatory assets under management only that portion of the securities portfolio for which you provide such services.

  • Under management by another person; or
  • That consists of real estate or businesses whose operations you “manage” on behalf of a client but not as an investment.

Now that we’ve discussed the two key components, (i) Identifying the Assets; and (ii) Quantifying the Assets - Here’s the How!!

(i) Determine which assets constitute Continuous and Regular Supervisory or Management Services

You provide continuous and regular supervisory or management services with respect to an account if:

  • You have discretionary authority over and provide ongoing supervisory or management services with respect to the account; or
  • You do not have discretionary authority over the account, but you have ongoing responsibility to select or make recommendations, based upon the needs of the client, as to specific securities or other investments the account may purchase or sell and, if such recommendations are accepted by the client, you are responsible for arranging or effecting the purchase or sale.

You should consider the following factors in evaluating whether you provide continuous and regular supervisory or management services to an account.

  1. The Advisory Contract. If you agree in an advisory contract to provide ongoing management services, this suggests that you provide these services for the account. Other provisions in the contract, or your actual management practices, however, may suggest otherwise.
  2. Compensation. If you are compensated based on the average value of the client’s assets you manage over a specified period of time that suggests that you provide continuous and regular supervisory or management services for the account. If you receive compensation in a manner similar to either of the following, that suggests you do not provide continuous and regular supervisory or management services for the account:
  • You are compensated based upon the time spent with a client during a client visit; or
  • You are paid a retainer based on a percentage of assets covered by a financial plan.
  1. Management practices. The extent to which you actively manage assets or provide advice bears on whether the services you provide are continuous and regular supervisory or management services. The fact that you make infrequent trades (e.g., based on a “buy and hold” strategy) does not mean your services are not “continuous and regular.”

You should consider the following examples in evaluating whether you provide continuous and regular supervisory or management services to an account.Examples of providing continuous and regular supervision:

  1. Have discretionary authority to allocate client assets among various mutual funds;
  2. Do not have discretionary authority, but provide the same allocation services, and satisfy the criteria set forth in Instruction 5.b.(3);
  3. Allocate assets among other managers (a “manager of managers”), but only if you have discretionary authority to hire and fire managers and reallocate assets among them; or
  4. You are a broker-dealer and treat the account as a brokerage account, but only if you have discretionary authority over the account.

Examples of NOT providing continuous and regular supervision:

  1. Provide market timing recommendations (i.e., to buy or sell), but have no ongoing management responsibilities;
  2. Provide only impersonal investment advice (e.g., market newsletters);
  3. Make an initial asset allocation, without continuous and regular monitoring and reallocation; or
  4. Provide advice on an intermittent or periodic basis (such as upon client request, in response to a market event, or on a specific date (e.g., the account is reviewed and adjusted quarterly).

(ii) Determine the value of those assets identified above:

Determine your regulatory assets under management based on the current market value of the assets as determined within 90 days prior to the date of filing this Form ADV. Determine market value using the same method you used to report account values to clients or to calculate fees for investment advisory services.

In the case of a private fund, determine the current market value (or fair value) of the private fund’s assets and the contractual amount of any uncalled commitment pursuant to which a person is obligated to acquire an interest in, or make a capital contribution to, the private fund.

Examples:

You should consider the following examples in calculating your value of Regulatory Assets Under Management.

The client's portfolio consists of the following:

  • $6,000,000 -- stocks and bonds
  • $1,000,000 -- cash and cash equivalents
  • $3,000,000 -- non-securities (collectibles, commodities, real estate, etc.)
  • $10,000,000 -- Total Assets

Let’s run through some Key Questions:

  1. First, is the account a securities portfolio?
  2. The account is a securities portfolio because securities as well as cash and cash equivalents (which you have chosen to include as securities) ($6,000,000 + $1,000,000 = $7,000,000) comprise at least 50% of the value of the account.
  3. Second, does the account receive continuous and regular supervisory or management services? The entire account is managed on a discretionary basis and is provided ongoing supervisory and management services, and therefore receives continuous and regular supervisory or management services.
  4. Third, what is the entire value of the account? The entire value of the account ($10,000,000) is included in the calculation of the adviser's total regulatory assets under management.

If you have any questions on these calculations, please contact us at Support@AdvisorAssist.com.