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The year began with the government stymied by a shutdown, and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018’s 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

did you know?

Even with the government shutdown at the start of 2019, the Office of Compliance Inspections and Examinations (OCIE) of the SEC had a busy year conducting examinations last year:

  • Completed 3089 exams (only a 2.7% decrease from 2018)
  • Included 2180 RIAs, or 15% of those registered with the SEC
  • Resulted in more than 2000 deficiency letters
  • Verified over 3.1 million investor accounts totaling over $1.5 trillion
  • Returned more than $70 million to investors for fees improperly calculated and charged

Source: SEC National Examination Program Priorities 2020

bright ideas
Regulatory Run Down:
SEC 2020 Exam Priorities & Advertising and Solicitation Rules Proposal

The Office of Compliance Inspections and Examinations (OCIE) of the SEC recently released its SEC 2020 Examination Priorities; this guide is intended to provide insight to its risk-based approach to identifying present and emerging risks to investors and the securities markets.

If you are either an RIA that is either newly formed or has not been examined in several years, take particular note as these groups are expected to have an increased likelihood of selection.

A few key take-aways:

  • The OCIE will continue to focus on the protection of retail investors, particularly seniors and retirement savers. Disclosures of fees, expenses and conflicts of interest will be examined closely.
  • Cybersecurity will remain high on the list of priorities again this year, and we expect scrutiny to continue to increase in this area for years to come. We encourage you to invest in the proper resources and third-party relationships needed for protection of your clients’ personal financial information. The OCIE will have a  particular focus on (1) governance and risk management; (2) access controls; (3) data loss preven¬tion; (4) vendor management; (5) training; and (6) incident response and resiliency.
  • The adoption of Regulation Best Interest in June 2019 will impact 2020 exams, including the addition of Form CRS Relationship Summary.  As a reminder, investment advisers who are already registered or have an application for registration pending with the SEC before June 30, 2020, must electronically file the Form CRS beginning on May 1, 2020, and by no later than June 30, 2020, either as: (1) an other than-annual amendment or (2) part of the initial application or annual updating amendment.
  • It should also be noted that if your fiscal yearend was December 31, you have until the end of March to file forms ADV Part 1, ADV Part 2A and ADV Part 2A Appendix 1 (if applicable).  In addition, a December 31 fiscal yearend firm is required to deliver a copy of Part 2A (and Part 2A Appendix 1 if applicable) along with a copy of the firm’s privacy policy statement to all advisory clients by the end of April.

Advertising and Solicitation Rule Proposal

As anticipated, in November, the SEC introduced an amendment intended to modernize the Investment Advisers Act, including:

1) The “Advertising Rule” (Rule 206(4)-1), an effort long overdue since it has not been modified since its inception in 1961, and

2) The “Cash Solicitation Rule” (Rule 206(4)-3), last modified in 1979

Overall, statements that are untrue, misleading or cannot be substantiated are all still strictly prohibited. However, among the changes, some of the most significant would include:

The permitted use of testimonials and endorsements— The proposed rule would permit advisers to use testimonials and endorsements only if they clearly and prominently disclose, or reasonably believe that the testimonial or endorsement clearly and prominently discloses: (i) that the statement was given by an investor (if a testimonial) or a non-investor (if an endorsement); and (ii) that cash or non-cash compensation has been provided by or on behalf of the adviser in connection with the testimonial or endorsement, if applicable.

Performance reporting—the proposal also seeks to provide more clarity on prohibited performance marketing. Here are a few examples; 1) the use of gross performance results is prohibited unless the advertisement provides (or offers to provide promptly) a schedule of fees and expenses deducted to calculate net performance; 2) the use of any material which states that the calculation or presentation of performance results has been approved or reviewed by the SEC. Also, the Commission has tried to provide a little more granular information regarding the oft confused guidelines surrounding the use of hypothetical performance. Though the Commission continues to prohibit the use of hypothetical performance in general, it has now given advisors a few pointed requirements which would allow for the use of model data. The proposed summary of these requirements can be seen below:

a. Adopts and implements policies and procedures reasonably designed to ensure that the hypothetical performance is relevant to the financial situation and investment objectives of the person to whom the advertisement is disseminated;

b. Provides sufficient information to enable the recipient to understand the criteria used and assumptions made in calculating such hypothetical performance; and

c. Provides (or, when the recipient is a Non-Retail Person (as defined herein), offers to provide promptly) sufficient information to enable the recipient to understand the risks and limitations of using hypothetical performance in making investment decisions.

Additionally, the proposal provides additional clarity on compliance record-keeping practices for advertisements, which should be reviewed and approved in writing by a member of your compliance team prior to use.

The updates to the Cash Solicitation Rule would include increased disclosure of conflicts of interest, including all forms of compensation both cash and non-cash, such as awards and prizes, free or discounted services and directed brokerage. It also includes a larger list of disciplinary events that would exclude advisors from acting as solicitors.

For questions or additional compliance resources, contact your wholesaler to discuss how we can be of help!

beacon news

“We tend to invest in them equally across that spectrum to diversify across the duration,” [Chris Cook, president of Beacon Capital Management] says [when it comes to spreading out bond risk in a portfolio]. “They’re fairly diversified but are heavily weighted to U.S Treasuries and other government debt. These are interesting for people who have a much lower risk tolerance.”

U.S. News & World Report: “Best Vanguard Bond Funds to Buy”

Be sure to visit Beacon’s News & Press page for the latest credibility pieces to share with your clients and prospects, and follow Beacon on LinkedIn for the latest updates as they happen.


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For Advisor Use Only, Not to Be Used With Clients

The GIPS Compliant Presentations for our Vantage portfolios can be obtained by clicking on the link below.  If you would like the Compliant Presentations to be emailed directly via PDF file or if you would like to receive a copy of Beacon’s Composite Descriptions; please respond to this email or contact Beacon at 937-439-9093.

BCM 2018 Compliant Presentations

Beacon Capital Management, Inc. is a registered investment adviser with the Securities and Exchange Commission. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

Additional information about Beacon Capital Management is also available on the SEC’s website at under CRD number 120641. Beacon Capital Management only transacts business in states where it is properly registered, notice filed, or excluded or exempted from registration or notice filing requirements.

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Beacon Capital Management

7777 Washington Village Drive, Suite 280, Dayton, OH 45459

P: 866.439.9093 | F: 937.424.4825