Best Practice Tips for the Use of Expert Networks in Investment Research

In general, an expert network platform facilitates the exchange of information between “experts” and investment professionals. Unfortunately, certain industry participants have misused expert networks, and in many insider trading cases, the analysts sought to cultivate relationships with experts outside of a structured platform.

At the recent Ascendant Compliance Management Conference “Compliance Disruptors: Seismic Shifts of the Regulatory Landscape” held in Napa, California, we discussed best practices for leveraging expert networks, political intelligence agencies, and direct paid consultants in the investment research process.

The following were the key takeaways provided by panelists Laurence Herman of Gerson Lehman Group, Jonathan Streeter of Dechert LLP, and Samantha Addonizio of Ascendant:

  • Develop compliance policies, procedures and controls that:

1) are separate from those provided by the platform;
2) are tailored to the specific risks of the information source; and
3) address how the Firm intends to monitor the activities of the experts on the platform or direct paid consultants.

  • Do not speak to experts that are current employees of a public company. Use the six-month rule!
  • Government employees should be subjected to the same compliance controls as “experts.” Government information can be just as sensitive and the SEC is currently focused on political intelligence agencies.
  • When speaking to direct paid consultants, verify and document the source of the information being exchanged. Require the consultant to sign an acknowledgement of compliance.
  • Monitor your analysts’ social networks (both online and offline). Do they have connections to officers at public companies on LinkedIn, Facebook, or Twitter? Is the portfolio invested in any of those companies?
  • If speaking to former officers at public companies, research whether they have ever had issues with Regulation FD.
  • Require employees to obtain pre-approval to schedule a call. Maintain a log of when calls occurred, and what individual securities and/or sectors were discussed.
  • Ask analysts to prepare notes of each consultation to provide to compliance for review!

Subscribe to CSS Blog

CSS frequently publishes blog posts which are written by our team from their observations in the field, at conferences and through experiences with compliance professionals. These posts are designed to further knowledge and share industry best practices. Topics run the gamut, including Form ADV, cybersecurity, MiFID II, position limit monitoring, technology challenges and more. Complete and submit the brief form below to receive notifications when we publish new content.

Loading form...

Latest Content

Form CRS and Its Impact on State-Registered Advisers

While many investment advisers are starting to plan for Form CRS/Form ADV Part 3, one group of investment advisers can breathe a sigh of relief that this is a project that does not need to be on their ‘To Do’ list. As of now, no state regulator has adopted this disclosure document for state-registered advisers. … Continued

Effective Compliance Policies & Procedures and Annual Reviews: Meeting the Reasonably Designed Standards

Investment Advisers must perform an annual evaluation of the effectiveness of their compliance program. This starts with ensuring, maintaining and implementing reasonably designed policies and procedures. This ComplianceCast webinar covers the recent regulatory changes that may trigger a need to reevaluate your present policies. Who Conducts and How to Conduct the Annual Review Planning and … Continued

7 Reasons to Attend Our Scottsdale Fall 2019 Compliance Conference

If you’ve been considering joining us in Scottsdale for our Sept. 23-25 compliance event, here are seven reasons you should take the plunge now! The Best Mix of Informational & Educational Speakers – We just added OCIE’s Co-National Associate Director of Investment Adviser/Investment Company Examination Program Marshall Gandy to our stellar list of presenters. He joins ex-NFL star Merril … Continued