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 SEC’s new proposal regarding cybersecurity, the SEC’s marketing rule, the SEC’s custody rule plan and the importance of growth for RIA firms.
Here are our top investment adviser compliance articles for the week of May 12, 2023:
SEC Steps Up Intensity of Cybersecurity Oversight (Author – Mark Schoeff Jr., Investment News)
The SEC has released a 500-page proposal for public comment that would require brokers, clearing agencies, major swaps operations and other entities to establish written policies and procedures to address cybersecurity threats. The commission has also proposed that broker-dealers, investment companies, registered investment advisers and transfer agents notify clients and customers of data breaches that could expose them to identity theft or other harm. The SEC has reopened the public comment period on a cybersecurity proposal for registered investment advisors and issued a risk alert on RIA and brokerage deficiencies in safeguarding customer records.
The SEC Marketing Rule Enforcement Actions Could Be on Their Way (Author – Melanie Waddell, Think Advisor)
The SEC has begun conducting exams of compliance with the agency’s new marketing rule, and enforcement actions related to firms’ lax compliance could be in the pipeline. While most advisors have fully updated their policies and procedures to reflect the new rule, the Investment Adviser Association has learned that the SEC exam staff has found serious marketing rule-related deficiencies on a large number of exams, with some being referred to the SEC enforcement staff. Firms that have done nothing to comply with the new marketing rule are at risk of facing an enforcement action.
Advisors Out in Force Against SEC’s Custody Rule Proposal (Author –Dan Shaw, Financial Planning)
Financial advisers and their representatives are opposing an SEC proposal to revamp the custody rule that governs how they safeguard assets entrusted to them by clients. The proposed rule extends custody requirements beyond traditional assets like stocks and mutual funds to alternative investment vehicles such as cryptocurrencies, real estate and derivatives. Advisers, however, are most concerned about the provision that would give them custodial responsibility if they have been authorized to trade on behalf of clients.
SEC Custody Rule Plan Would Hurt Annuity Access: IRI (Author – Melanie Waddell, Think Advisor)
The Insured Retirement Institute (IRI) has warned that the SEC’s proposed Safeguarding Advisory Client Assets rule could prevent clients of RIA’s from obtaining lifetime income products, such as annuities. The rule would impose strict requirements related to custody of investor assets, even when no assets are actually in the custody of the RIA or insurer. IRI has called for an exception to the proposed rule’s qualified custodian requirement, which it says should allow insurance companies to act in lieu of a qualified custodian in connection with all contract types.
Elevate: Growing RIA’s Provide Experiences, Not Products (Author – Ali Hibbs, WealthManagement.com)
DeVoe & Company’s fourth annual Elevate conference was held in Nashville, where growth and talent were the main topics discussed over three days. Speakers emphasized the importance of growth for RIA firms, shared thoughts on motivating employees and clients and discussed new ideas for how independent firms can outcompete established institutions long into the future. DeVoe noted that average organic growth rates across the RIA space have decreased by more than 50% since 2017—the same rate at which the average adviser cut their marketing and business development budgets over the same time.
Don’t forget to check out last week’s top RIA compliance news articles recapping the SEC’s sweep of advisers’ off channel communications, the publication of the 2023 Chief Compliance Officer Playbook and more.