The Asset Management Corner Podcast - Episode 1: Change is Afoot!

In the inaugural episode of Asset Management Corner, former senior SEC officials Andrew Dean and Chris Mulligan dive into the sweeping changes underway at the SEC. From new leadership and shifting exam priorities to upcoming rules and enforcement trends, this episode offers expert insights into what compliance officers, fund managers, and legal professionals should expect in the months ahead. Andrew and Chris also preview the podcast's format, share predictions on guidance vs. rulemaking, and offer practical takeaways on how to stay prepared amid regulatory change.

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Andrew Dean: Hello and welcome to the inaugural episode of the Asset Management Corner, the podcast where former senior SEC officials break down the latest in the asset management space. I'm your host, Andrew Dean, partner at the law firm Weil, former Co chief of the Asset Management Unit and the SEC's Division of Enforce. And joining me is my co-host. 

Chris Mulligan: Hi Andrew, I'm Chris Mulligan. I'm also a partner at Weil. I was at the SEC for 12 years serving as senior Advisor for Investment advisors and private funds in the division of Examinations where I was also Co coordinator of the private Fund specialized working group, grafted investment management risk alerts and advised on hundreds of exams a year. Between the two of us, Andrew and I have over 24 years of experience inside the walls of the Securities and Exchange Commission, and now we're stepping outside to breakdown what's happening inside the SEC today for investors, for markets and for anyone who cares about financial regulation. 

Andrew Dean: There's going to be a lot for us to cover and we're kicking off our very first episode with the timely topic. Major changes coming out of the SEC, new leadership, new priorities, new rules on the horizon. What's it all mean for compliance officers, private funds, retail advisors, registered investment companies, financial professionals and investors. 

Chris Mulligan: Let's talk a little bit about how we plan to run this podcast. On each episode, we'll discuss the latest trends that we're seeing from the division of examinations on actual examinations and what we're seeing from the division of Enforcement, what's being published, what cases are out there. We'll unpack any recent guidance or rule proposals and we'll give you our take on what's driving the Commission's ever evolving agenda for private funds moving in into retail to custody, rule to crypto and beyond. And we'll also have guests. We'll have thought leaders, we'll have defense lawyers, we'll have in-house counsel, CCO's, outside counsels, compliance consultants, those who can help shape the conversation and know what's going on in today's marketplace. 

Andrew Dean: And we're here to give you that context, insight, and a little bit of inside baseball from folks who were in the room. And you're gonna hear about our experiences as we go. We plan to do these monthly, more frequently as circumstances dictate. The goal is to get you information bite sized chunks perhaps when you're having lunch at your desk, over a coffee break, we're gonna try and be timely. If something important breaks out of the SEC, we wanna give you hot takes as soon as we can. So, Chris, let's get into it. Change is afoot at the SEC. A new chairman's been sworn in. Paul Adkins. He's starting to shape the tone and priorities of the Commission, what's your read? What are your big themes? 

Chris Mulligan: So sure, there's obviously been significant change at the SEC in the past few months. We've seen a lot of departures, not just at the senior level, but also at the mid level and even the lower level across all regions and divisions. And we're seeing that there is a new sort of attitude from the policy divisions with respect to guidance. And I'll talk a little bit about that. But there's an openness on behalf of the SEC staff to really engage with industry in a way that we have not seen in a number of years. In terms of what we can expect going forward, I think what's interesting is Chair Atkins submitted his budget for the next year for the SEC and it was effectively flat from the prior year which surprised folks. But I don't think it should be surprising for a couple of reasons. One is the SEC is a pretty small agency its budget comes in around 2.1 billion dollars. And that's not a huge number considering their mission, which is to regulate, you know, the largest capital markets in the world. So the fact that it came in flat, I don't think is necessarily surprising when you take into account inflation, of course it is a slight decline. If you look under the hood of the budget however, there are some cuts. They are requesting fewer enforcement staff. They are requesting somewhat fewer examination staff and in all the number of employees that Chair Atkins is requesting is down from about 4500 to about 4100 for this upcoming years. That's a drop of around 9%. However, because of the number of departures we've had in the past few months, it's not clear whether there's actually going to be anymore layoffs going forward, or if this is sort of what we have. Chair Atkins in his testimony before Congress even said that there probably will be a little excess money because of his request and the fact that there have been so many departures. Bottom line is, while there's reduced staff the budget is effectively flat, and we certainly expect exams and enforcement activity to continue. We are absolutely seeing on the exam front, we are not really seeing a slowdown as of yet. We'll see where the numbers play out at the end of the year. You have declining staff and the division of examinations. You have an ever increasing number of registered investment advisors. And a really increasing amount of assets under management. So it'll be interesting to see if they could keep the coverage ratio similar to what they've had before. Exams are still being led by an acting director, longtime SEC employee. So very steady hand there for now. We'll see what happens at the division of examinations. There was some big news, however, last week, with the division of Investment Management, which is the policy division that makes rules and and issues guidance with respect to investment advisors and investment company, Natasha Greiner departed and replaced by Brian Daly. Brian has been involved with SEC examinations for the private sector, particularly with private fund advisers and registered investment advisors for over a decade, really since Dodd Frank. And so he will bring a pretty practical perspective, chair Atkins even said that when he appointed Brian to be head of IM that he's gonna bring a sort of very practical real-world sense to rule making. And I'm sure that's how that will play out. So that will be interesting. We'll also see if there's any more restructuring. There's been some restructuring with some of the regional offices. But is there something more major to come in terms of how they're gonna view the division of examinations and the policy divisions? So we're keeping a close eye on that. Yeah. In terms of what we're seeing from staff, like I said, just a very open mind from my own staff. They're engaged with industry. They've engaged with law firms, they engage with restaurants. They're really trying to understand what rules are working, what are not and trying to use whatever tools they have at their disposal to deal with some of those issues. Just in this past week, we saw form PF Amendments. A really challenging set of amendments for form PF being delayed from June to October. The second time they delayed those amendments, we also saw some statements from the Commissioners that they may be revisiting these amendments, maybe the entire form perhaps and trying to think through what's necessary and what's not necessary in form PF. Earlier this spring, we saw a very well received marketing FAQ that effectively reverses an earlier position about requiring net and gross for attracted performance. Under the Advisors Act marketing rule, a very well received FAQ, a lot of nuance. It is complicated. I think we need an entire podcast, frankly, to breakdown that FAQ. But bottom line is, it's clearly IM staff trying to signal that they want to be realistic and practical with how some of these rules play out. And we expect to continue to see policy divisions, try to find ways to make it easier for registrants, or more streamlined for registrants in a variety of different ways. And the bottom line is it's a very different environment at the SEC. It is somewhat smaller, but we are seeing exams continue to be very, very aggressive, focused on investor protection issues, but we are seeing a sort of very different attitude in terms of the types of guidance that they're looking to issue. 

Andrew Dean: Chris, Big Picture on this, do we expect to see more guidance coming out of IM, more FAQ's, more similar types of guidance to industry over some hot button topics? 

Chris Mulligan: I think so. I mean, the decision between guidance and rulemaking is difficult, right? I mean, there's only so much you can do with guidance. Guidance can be revoked by the next administration, but it's quick and it's something that the staff can issue relatively painlessly. A rule making, even when you're trying to take away a rule or make a rule easier, is it can be very, very difficult and has a lot of unintended consequences, right? We saw that with the market rule, the market rule was adopted under chair. Clayton was intended to be deregulatory. Obviously that played out in a lot of different ways and in some cases it was, in other cases, was not. And so you know, rulemaking is tough. And so you know, the areas are clearly going to look to do something in, in our crypto assets, the custody rule, form PF making private markets, including private funds, easier to access for retail investors. It's been signaled pretty strongly these are the areas that they're interested in. And the decisions will have to be made. Is this done through guidance or is it done through rulemaking or some combination of both and there's pluses or minuses to all of those approaches.

Andrew Dean: Yeah, Chris, I agree. And I also think that to the point of the budget and the personnel, I mean, and this has been kind of written about as well is that they're gonna have to bring more people on the more expertise. They've lost a lot of expertise in the building. It's still a lot of great people left. But to the extent this Commission wants to implement its vision for what the SEC should be doing. And going forward, they're gonna, I think necessarily need to bring on other experts in some of these areas, so I do think we're going to see hiring probably in certain areas that will be focused. I'll give you just a couple of big themes for me, some process, some substance. On the process side, you know one of the things that a lot of people have like looked back and written about Chairman Atkins 2008 Law Review article about enforcement and about the way the world was when the things he wanted to see changed as of 2008. And you know, one of those things that's already happened and it's kind of gone back to what life was like before then, was the revocation of delegated authority to open investigations. This means that the staff, the enforcement staff, needs to actually go to the Commission to open a formal investigation, which those formal investigations give the staff subpoena authority. Practically speaking, we'll have to see what that means. It's probably going to definitely impact things on the margins, at least. Staff will still be able to open investigations informally and proceed on a voluntary basis. Obviously, certain registrants, advisors, broker dealers have required books and records that they'll need to turn over. So a lot of cases will be able to move forward without formal order subpoena authority, in any event, but the real impact may simply be the staff maybe not opening on things, if they don't think that the Commission would support that type of an enforcement action. Another process point that I would say that we should pay a lot of attention to and, I think senior SEC officials have been talking about this, is additional transparency during the course of investigations, which I think makes a lot of sense. It's something that we tried to do when we were working there. There is basically parties getting more information about what the staff is seeing, what the legal theories are at the end of investigations. The idea is to try and like, get the parties on the same page about whether or not a resolution is possible. And I think if both sides have more information about what the other party is thinking and where they think the tensions are it's easier to assess litigation risk and settlement of value in a case, so I think we'll start seeing, I think, more transparency by enforcement staff at the end of investigations. You know, on the substance point, I'll say too, the SEC senior officers have recently been speaking out at various events, including SEC speaks, where all the SEC senior officers talk annually. And, at that event, Sam Walden who’s the acting enforcement director, said that changes will not, and this is a quote, ‘will not be nearly as stark and pronounced as some are predicting’. And so I think that's probably right. I mean, I think a lot of the cases are fairly down the middle, and we're gonna definitely see changes in approach, we're gonna see changes in penalties and we’re gonna see changes in remedies. But otherwise it's going to remain to be seen about whether they're changes we have. Chris talk a little bit more, give us a deeper dive on the exam front, like what are you expecting to see? What are you seeing? 

Chris Mulligan: Yeah. So as I mentioned, we're not really seeing a slowdown. We are seeing a lot of departures, right, so you're seeing exams in some cases take longer because there is turnover with the staff. And so I do think you're seeing examinations take a little bit longer than they have in the past. But I think you're also seeing more narrowly focused examinations, examinations that are maybe not from soup to nuts, every single compliance issue that's out there, but really zeroing in on those issues that I suspect they think enforcement may continue to be interested in and generally enjoyed bipartisan support. So we're seeing, you know, very deep dives on fees and expenses, particularly post commitment period management fees including you know how the the base is created after the investment period, how that base is reduced through dividend recaps. We're seeing deep dives, as we always do, on how fees and expenses are allocated amongst the funds, the portfolio companies and the like. We're seeing a lot of focus on GP led secondaries, likely due to the recent form PF filing, not the new amendments, but the last wave of amendments that required current reporting on a number of different issues including GP led secondaries. So we're seeing a lot of focus on the process and the symmetry of information provided all around during the GP LED secondary process. So you know a lot of focus on operating partners, how they're advertised, how their expenses are allocated. Continue to see deep dives on valuation, sort of across the board, open end funds, closed end funds, just a lot of interest in valuation. Not doesn't necessarily always lead even to a deficiency, but a lot of interest from examiners on valuation. Seeing deep dives on allocation of offset income, income that comes from underlying portfolio companies, how that's allocated amongst vehicles. A lot of interest and focus on duplication of services. Who is providing the services? Is it the same as someone else? How is that disclosed? Continue to see and I think this is just evergreening focus on custody notwithstanding the potential for a new wave of amendments that may come along. The custody Rule amendments along with, by the way, a large set of amendments from Chair Gensler were officially dropped this past week. I don't think that's a surprise to anyone, and really that has been expected since, frankly, the election night that the very large wave of proposed but unadopted rule proposals from Chair Gensler would not make their way in this new administration, we’re certainly seeing that. But custody is an issue that certainly is on the table for potential amendments, and we're seeing a lot of focus on that from the exam staff. Marketing, marketing, marketing, everything related to do with marketing, notwithstanding the latest FAQ, we are just continuing to see a very deep dive on marketing across the board across all regions, I would say. And that does sells into AI, we're seeing a lot of focus on on AI representations and marketing material. A lot of focus on internal policies and procedures that advisors have with respect to AI and basically anything related to AI, you're seeing examiners really focus on. And then we're seeing very traditional whistleblower provisions. Hedge clauses, no slow up in those issues as well. The bottom line is you know we are not really seeing a slowdown in exams. We are seeing perhaps more efficient exams that are really focused on sort of these key areas and less focused on some of the more generic policy and procedure type issues. And that may be sort of the solution that exams comes up with to keep up with the ever growing registrant community while dealing with a reduced app. 

Chris Mulligan: We'll see. They're so likely a lot of changes to come, but so far that's what we're seeing on the exam from. And what about enforcement and what are we seeing with enforcement? 

Andrew Dean: So on enforcement enforcement speaks two ways. It speaks through actual enforcement actions that are filed by the SEC and by public statements by senior SEC officials. And so we can kind of put a few things together. First of all, a lot of the cases we've seen since the new Commission's been in place have been kind of more fraud-based case, cases I informed with the capital F. I mean, that is kind of bread and butter SEC and that's what this Commission has kind of talked about in terms of there being a reset. There were a lot of cases that were brought before Jan 20, that has slowed down and then it has started to pick back up again. And so we're starting to see more of a flow as a general matter in the asset management space, we tend to put types of cases into three different buckets. We think about retail accounts, registered funds and private funds. And right now all the public comments coming out of the SEC tend to focus on retail. And that was also the emphasis of the Clayton Commission. And, actually at a recent SEC speaks event, the two most popular words were like retail and investor harm and I kind of want to create a word cloud of those and they would be very large words on a piece of paper. And look well, certainly retail is going to be in the mind of this staff and Commission going forward. It's easy to follow a little bit of a trap and assume that's the only thing that they're looking at. Instead, I'm going to give you the way that Chris and I talk about it, is look at the votes. It's publicly available how the SEC Commissioners vote on several matters. It's on their website, it's all foible, and so they just put it on the website. So you could look back at the votes on categories of cases to predict where this Commission is going to go going forward. So for example to Chris's point, he said marketing rule 3 times. There's a reason why because marketing is basically, they're all 5 vote Commission votes, so we're going to continue to see that, so registrants need to continue to scrub all their materials, substantiation, hypothetical performance, testimonials, endorsements. It's all gonna be there. Custody rule again, Chris said it. Evergreen issue. Almost all of them tend to be 5-0 votes. Whistleblower Protection Rule 21, F 17. Almost all of those were 5-0 votes. Advisors need to continue scrubbing all their materials. Limited partner agreements, non-disclosure agreements, third party agreements, severance agreements, so anything with the word agreement in it should be checked to make sure there's no provision that would impede A whistleblower from reporting the securities law violation. We've also seen a lot of talk out there, but people saying that there’s gonna be no more just kind of traffic violations or small infractions. And I would say not so fast. Let's look at kind of how some of the votes have come out. So for example, in December of ‘24, there were seven cases brought for registrants failure file form PF. Those were all 5-0 votes. Also more recently, in April, the SEC charged an adviser for including materially false and misleading information in an application by a registered investment company to deregister. That was a 3-0 vote, which included two Republican commissioners. So let's not count out all of those types of cases just yet. It's also worth noting that at SEC speaks event that I referred to earlier, that there was a lot of talk by the asset management unit, my old group in particular, about where the SEC is going to continue to bring cases under 262 of the Advisors Act. Those cases categories include and, these are their terms, breaches of fiduciary duties, misappropriation of and failure to safeguard assets, misleading strategy disclosures, undisclosed conflicts of interest, fraudulent valuation and missed marking of assets, undisclosed fees and expenses, prohibited trading practices such as cherry picking, fraudulent allocations, unauthorized principal transactions, unauthorized affiliate and joint transactions. Chris, this basically captures almost every case that the asset management unit has brought for the last four, the last eight years. It doesn't matter what administration, what Commission it's been in. These are the types of cases that are gonna continue to happen. And yes, there will be changes on the margins, for sure, but I do expect there to be continued attention to these areas. Another area that I think it's short shrift is 204 Cap A. There's been a lot of talk that, you know, they're not going to just look at policies and procedures cases anymore, not so fast. Again, the chief of the Asset management unit, Corey Schuster, has said to us in that SEC speaks event that it will remain in the enforcement toolbox, 204 CAP A. And there are settled cases on 204 Cap A that we've written about before and the client alert that were 4-1 and 5-0 votes at the end of the last Commission, so it's gonna remain a priority. Registered funds will always be a huge priority. We'll continue to see a lot of work and effort there. Also as the SEC continues to shift into focusing on retail, I think the retail accounts going into and investing in private funds is going to become an even bigger focus by the SEC. It's gonna take all that expertise that the staff has gained in private funds and let them to continue using it though in the retail context. So they'll be able to kind of import that knowledge. A couple of judicial outcomes to note: the Cutter case, the Commonwealth case. I think those are cases that we've written about. We'll talk about those more going forward. Alright so that's kind of the enforcement front. Chris, anything else from you? Any big predictions, anything you wanna share in addition? 

Chris Mulligan: So a couple of things. One is, there are a couple of rules that have been adopted and the compliance date hasn't come yet. So like we said, the proposals from the Gensler area, they are very much there, they are absolutely not coming back in this administration. But, there were a couple of rules that were adopted that have compliance dates that are coming up. 1 is some pretty significant amendments to Regulation SP that kick in in December. And if those rules are not delayed, IA has asked for a delay we'll see what happens, but if they're not, I do actually expect that exams will examine for compliance with these new rules pretty aggressively. That has historically been something that exams has really put a lot of emphasis on, which is to get out and make sure that registrants are complying with the new rules, and so I do expect we'll see Regulation SP amendments will become a pretty significant part of examinations if the compliance date is not moved out. AML rule kicks in for registered investment advisors on January 1^st. I think there is more likelihood that that will be delayed for a variety of reasons that again, we need much more time to talk about. But to the extent that any old rules that were adopted under Chair Gensler make it across the finish line or not delay, I don't think you'll see exams lay off of it. I think you'll actually see the opposite. They'll really make sure that registrants are compliant with it, so it's a good idea to keep tabs on some of these rules that maybe people have forgotten about. And then on the rulemaking front, I think it's going to move quicker than people think, and it's just because of the calendar. You think back to chair Gensler, he moved pretty aggressively in 2022 with proposals, with the goal of getting them adopted in 2023 or early 2024. And you look at the calendar now, that would mean we would start seeing some rule proposals in 2026, with the goal of getting them across the finish line and adopted in 2027 and 2028. So you know, while Chair Atkins was just very recently sworn in, he doesn't even have his entire team yet together, the calendar really does move very quickly and rulemaking is really tough and it takes a lot of time. So I actually expect us to see some pretty significant rule proposals in 2026. 

Andrew Dean: My bold prediction for you, Chris, is that hopefully we'll have an enforcement director soon enough. I think we're also missing Corp Fin, but they're coming, they're in the works, I'm sure everyone's working hard to find the right people. Chris, this was fun. We've got a lot of topics to cover on. We hit on a lot of big picture things today. It's gonna be a really interesting next few months. And as we said, we're gonna try and do these monthly and we'll do it sooner if anything hits that's worth sharing with folks. For now, though, thanks for joining us, and stay tuned for our next episode!

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