On October 31, 2018, the Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) released a new Risk Alert regarding compliance deficiencies observed in connection with Rule 206(4)-3 (Cash Solicitation Rule) under the Investment Advisers Act of 1940, as amended (Advisers Act). The purpose of the Cash Solicitation Rule is to notify prospective advisory clients that the person recommending the adviser (that is, the solicitor) has a financial incentive to make the referral. The Cash Solicitation Rule prohibits SEC registered advisers from compensating affiliated or third-party solicitors in cash for referring or soliciting persons to become advisory clients of the investment adviser unless the solicitation arrangement satisfies a number of conditions.

Originally published in The Investment Lawyer - February 2019.