Each Friday, we are giving you our weekly 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 the Small Entity Update Act, electronic communications, SEC requirements for private funds, robust growth within financial advisory firms and M&A transactions.
Here are our top investment adviser compliance articles for the week of June 2, 2023:
House Passes Bill Requiring SEC to Update Small Business Definition (Author – Melanie Waddell, Think Advisor)
The Small Entity Update Act, introduced by Rep. Ann Wagner, has been passed by the full House. This legislation requires the SEC to update the definition of “small business” for the purpose of securities regulation. The bill mandates that the SEC conducts a study and revises the definition every five years, taking into account the impact of their rules on small entities under the Regulatory Flexibility Act. Currently, the SEC defines a small business as having less than $100 million in annual revenue. The bill instructs the SEC to provide detailed recommendations to Congress on revising the definition of small entities to align with statutory goals, reduce unnecessary burdens and expand coverage.
Firms Brace for SEC Spotlight on Electronic Communications (Author – Bill Simpson, Investment News)
The SEC has fined two firms for their failure to comply with record-keeping requirements, as part of the SEC’s efforts to scrutinize off-channel communications. The violations involved employees at various levels, including supervisors and senior executives. Regulatory examinations are still ongoing, with electronic communications being a focal point. The SEC’s actions on Form CRS violations indicate that the latter part of the year may see increased regulatory activity. Other regulators, such as the Consumer Financial Protection Bureau and the Department of Justice, are also adopting aggressive stances.
Gensler Warns of Increased SEC Requirements for Private Funds (Author – Lowenstein Sandler, JDSUPRA)
Gary Gensler, Chairperson of the SEC, spoke at a conference and highlighted the SEC’s increased focus on addressing potential instability in money market funds and open-end funds. The SEC has proposed several measures, including preventing restrictions on redemptions during financial stress, enhancing liquidity requirements, and introducing swing pricing and liquidity fee alternatives for institutional prime and tax-exempt money market funds. For open-end funds, the SEC aims to update liquidity rules, establish minimum liquidity standards, create pricing alternatives and reduce the lag between investors’ orders and fund processing.
How the Fastest Growing Advisory Firms are Different in 7 Charts (Author – Michael S. Fischer, Think Advisor)
A new report from Nitrogen (formerly Riskalyze) reveals that financial advisory firms are experiencing varying levels of growth and facing different challenges. Hypergrowth firms are growing rapidly, while slow-growth firms struggle to increase assets under management, attract top talent and deliver personalized client experiences. Fierce competition in the industry raises concerns about client retention. One significant challenge is the trust gap between clients and financial advisers, hindering financial literacy efforts.
Nitrogen’s study compared hypergrowth and slow-growth firms to identify strategies and practices contributing to their success.
M&A Dealmakers See Transaction Flow Picking Up Rest of Year (Author – Tobias Salinger, Financial Planning)
Wealth management dealmakers anticipate a rebound in merger and acquisition (M&A) activity for the remainder of the year. M&A transactions in the wealth management industry experienced a slowdown due to rising interest rates, struggling stocks and recession concerns. However, recent analysis by Echelon Partners reveals a surge in the number of U.S. wealth management transactions involving sellers with at least $1 billion in client assets. Newer acquirers are joining existing buyers in significant deals, contributing to industry consolidation. Private equity capital plays a key role in financing these transactions.
Don’t forget to check out last week’s top RIA compliance news articles recapping how financial planners make remote life work, the evolution of RIA consolidation and more.