Top RIA compliance news articles for the week of Jan. 20, 2023

 

IARs in 10 states, DC must complete continuing education by year-end (Author – Mark Schoeff, Jr., Investment News)

Many states have adopted a regulation which requires all IARs registered in their jurisdiction to complete 12 credit hours of courses. They much complete six hours in products and practice and six hours in ethics by the end of the year. The states which have adopted this regulation are Arkansas, Kentucky, Maryland, Michigan, Mississippi, Oklahoma, Oregon, South Carolina, Vermont and Wisconsin. The regulation is also in effect in Washington, D.C.

This will be the first time investment adviser representatives will have continuing education requirements.

 

 

DOL independent contractor rule could crimp advisers’ independence, FSI speakers say (Author – Tracey Longo, Financial Advisor)

The DOL has proposed an independent contractor rule which would re-classify employee status for many professionals. The DOL’s proposal, scheduled for approval on May 6, 2023, is meant to ensure people who, in fact, should be classified as direct employees are not being improperly deemed independent contractors. It’s driven primarily by a concern that workers at “gig economy” companies are being deprived of federally mandated minimum wages and overtime pay. The rule would cause independent advisers to become employees of their broker-dealers. The rule could have wide-ranging implications for employees, freelancers and employees alike, and has been met with opposition from many, including speakers at the Financial Service Institute’s (FSI) annual conference. 

Scott Spiker, chairman and CEO of First Command Financial Services and chair of FSI, FSI’s OneVoice 2023 conference, said, “The Department of Labor has once again deemed that every American should be an employee.” He added, “They disregard the importance of independent financial advice and the structures that support it. And they’re happy to lump us in with the gig economy that they are so anxious to control.”

In October, the DOL announced its rule, seeking to reverse the President Trump-era approved 2021 Independent Contractor Rule, which was favorable to independent advisers. The 2021 rule reduced the criteria for classifying a worker as an independent contractor to two metrics—control over work and opportunity for profit.

Similar to Spiker, those oppose the proposed rule are concerned it will restrict those who are currently considered independent contractors’ ability to find work on their own terms and make a profit.

 

Study: 58% of independent advisers would abandon broker ties under DOL rule (Author – Dan Shaw, Financial Planning)

The FSI released its study regarding independent financial advisers’ response to the DOL’s proposed independent contractor rule. The results from the study have some troubling implications for the financial landscape.

The study indicates that although the rule was developed to prevent abuses of independent contractors, it could drive large numbers of advisers to end their affiliation with larger brokerages. As much as 58% of independent financial advisers who participated in the study indicated they would cut ties with their affiliated brokerages if the only other alternative under the proposed regulation is to become a direct employee. Results from the study also suggested the proposed rule could give these professionals a greater incentive to work exclusively with well-to-do clients, neglecting brokerage firms and broker-dealers who are not as well funded.

 

Questioning the SEC’s outsourcing proposal (Author – Investment News)

The SEC has shared with the public its outsourcing proposed rule, which would set forth a series of requirements third-party vendors would have to meet if they were to serve investment firms or investment advisers. The rule has received 90 or so comments, which generally fall into two camps.

Those who oppose the proposed regulation, such as trade groups for registered investment advisers and mutual funds, say the requirements would cause investment firms and investment advisers to cover “superfluous and burdensome” expenses. They say advisers’ fiduciary duty already requires they ensure any outsourcing firms are acting in their clients’ best interests. Some, such as the Securities Industry and Financial Markets Association (SIFMA), say the SEC should focus on high-risk situations rather than creating a new regulation which reiterates the functions investment advisers should already be performing.

Those in favor of the proposed regulation, like the North American Securities Administrators Association (NASAA), agree there’s a need for more supervisor of service providers.

 

DOL indie contractor rule would cause “significant disruption” (Author – Melanie Waddell, Think Advisor)

Oxford Economics recently released a study which highlights the potential impacts of the DOL’s independent contractor proposed rule. According to the survey:
•    Up to one-fifth of independent financial advisers would rather retire than lose status as an independent contractor.
•    An overwhelming majority of independent financial advisers would rather remain independent and not move into W-2 employee status and would consider steps such as forming their own registered investment adviser firm to retain their independent contractor status.
•    Substantial costs to financial advisers and firms would result from the tremendous shift to employment status.
•    Reduced access to investment advice, fewer product and service provider choices and higher costs could occur for Main Street investors.

 

Don’t forget to check out last week’s top RIA compliance news articles recapping how wealth management firms can keep compliant in 2023, the SEC’s regulatory power, the agency’s decision to award a whistleblower $5 million for reporting misconduct, the Certified Financial Planner (CFP) board’s decision to ban a dozen advisers for either neglecting or misleading clients and the challenges firms may face in trying to comply with the SEC’s new marketing rule for investment advisers.