What’s the latest news in the world of regulatory compliance? Welcome to our biweekly recap, where we are giving you our report highlighting the top compliance news articles from various industry news publications. We have selected the most relevant and important news articles related to registered investment adviser (RIA) compliance and regulatory issues. This week’s recap focuses on takeaways from the Investment Adviser Association (IAA) and COMPLY IA Snapshot, concerns over the number of Securities and Exchange Commission (SEC) rule proposals and the impact it could have on the industry, the Department of Labor’s (DOL) Retrospective Review Requirement deadline and third-party exams for RIAs.
Here are our top investment adviser compliance articles for the week of Jun. 30, 2023:
SEC Committee Floats User Fees, Third-Party Exams for RIAs (Author – Melanie Waddell, Think Advisor)
The SEC Investment Advisory Committee has suggested implementing user fees and third-party exams to increase the agency’s examination rate of investment advisers. This recommendation was made in response to a panel discussion held on March 2. SEC Commissioner Hester Peirce, expressed some concerns about the recommendation and posed several questions regarding its implications.
“The recommendation “brings attention to the mounting challenges the Commission faces in ensuring adequate oversight of investment advisers,” Peirce states. The SEC’s Division of Examinations “is central to our efforts to protect investors and ensure the smooth running of our capital markets,” but the “resources for this key Division are always stretched thin.”
Number of investment advisors hits record high (Author – Mark Schoeff Jr., Investment News)
The number of investment advisers reached record highs in 2022, despite a decline in assets under management (AUM), according to a study by the Investment Adviser Association (IAA) and COMPLY. The report reveals that there were 15,114 registered investment advisers with the SEC in 2022, a 2.2% increase from the previous year. Advisers employed 971,487 staff, showing continued growth over the years. However, AUM fell to $114.1 trillion in 2022 due to market declines, although it remained higher than in 2018. The study also reveals that investors increasingly trust advisers, with a growing number of individuals engaging investment advisers for asset management.
“Investors are increasingly engaging investment advisers, which continuously provide investment management advice as fiduciaries, putting their clients’ interests ahead of their own,” IAA CEO Karen Barr said in a statement. “Over the past five years, over 22 million more individuals have engaged an investment adviser for asset management — a rate of growth in both the number of individual clients and assets of roughly 12% per year.”
13 rules in less than 3 years is too much, advisor group tells SEC (Author – Dan Shaw, Financial Planning)
The IAA has expressed concern over the SEC’s proposed regulations and their potential impact on the financial planning industry. The IAA, representing over 600 advisory firms, sent a letter to the SEC stating that the industry needs at least five years to comply with the numerous regulations, rather than the SEC’s proposed timeline of just over two years. The regulations involve requirements such as renegotiating contracts with third-party service providers and entering into contracts with custodians for safeguarding client assets. The IAA argues that the proposed timeline does not allow enough time for firms to make the necessary internal changes to meet the new rules. The IAA also raises concerns about redundancies, inconsistencies and potential cybersecurity vulnerabilities resulting from the proposed regulations. The IAA urges the SEC to consider the cumulative impact of all the proposed rules and provide a minimum of five years for compliance.
What the RIA Industry Looks Like Now, in 10 Charts (Author – Melanie Waddell, Think Advisor)
The registered investment advisory industry experienced continued growth in 2022, with an increase of 2.1% in the number of advisers. The industry managed $114.1 trillion in assets for 61.9 million clients, according to the Investment Adviser Association and COMPLY’s Industry Snapshot report. The report highlights a record high number of clients using asset management services and notes that the industry has been resilient despite a decline in assets under management. The majority of advisers are small businesses, employing 100 or fewer staff and managing less than $5 billion in assets. The report also mentions that the Securities and Exchange Commission’s rule proposals have the potential to bring significant changes to the industry, particularly the safeguarding proposal, which would impact a significant portion of advisors by subjecting them to custody requirements.
DOL Rollover Review Deadline Looms; Here’s Where Firms Stand (Author – Melanie Waddell, Think Advisor)
The DOL’s deadline for investment advisers’ initial retrospective reviews, as required by the Prohibited Transaction Exemption (PTE) 2020-02, is approaching on June 30. Despite a federal court striking down the DOL’s guidance in February, ERISA attorney Fred Reish suggests that the PTE-2020-02 is still in effect and firms must comply with the deadline. Reish emphasizes that the recent court decision only addressed plan-to-IRA rollovers and does not exempt firms from conducting the review and report. He believes that the DOL’s new fiduciary rule, expected in August, will likely include rollover advice as fiduciary advice. Reish also mentions that artificial intelligence has the potential to revolutionize the industry by providing comprehensive information and analysis to participants and retirees.
Check out our previous round up, which focused on three industry trends that affect advisers, the SEC’s warnings about firms’ noncompliance with new marketing rule, five rules the SEC intends on adopting this year, responses to the SEC’s new cybersecurity rule and the DOL’s recent announcement of a new fiduciary rule.