Each week, 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 Securities and Exchange Commission (“SEC”) Marketing Rule, the possible expansion of the Department of Labor (“DOL”) Fiduciary Rule, and the importance of operational due diligence (“ODD”).
Here are our top investment adviser compliance articles for the week of February 18th, 2022:
1. Lawyers Release SEC Marketing Rule Checklist as Advisor Questions Linger (Author –Melanie Waddell, Think Advisor)
Melanie Waddell discusses the checklist released by law firm Eversheds Sutherland last week regarding the new SEC’s marketing rule. Since the rule’s announcement, compliance experts and advisers alike have been trying to get a firm grasp on what will be required. Cliff Kirsch, partner and Head of Investment Services at Sutherland, explained further, “As we get closer to the rule’s compliance date, we still see advisers dealing with a myriad of open issues regarding the rule’s requirements.” The firm hopes their checklist can provide guidance to advisers as the November 4th compliance date gets closer.
2. Tougher DOL Fiduciary Rule May Target One-Time Transaction Fees (Author – Tracey Longo, Financial Advisor)
Senior attorneys at law firm Faegre Drinker are expecting the Department of Labor (“DOL”) to expand the fiduciary rule to encompass more than just the traditional adviser/client relationship. The industry is hoping for a proposal from the DOL within the next 6 months. Fred Reish, partner at Drinker, explains the possible rule expansion further, “the prediction is it would define fiduciary advice as including one-time advice. In other words, take away the ongoing recommendation requirement. So if you gave one-time advice or establish a relationship of trust and confidence with the investor than that would constitute fiduciary advice.”
3. Are You Keeping an Eye on Your Service Providers? (Author –Thomas D. Giachetti , ThinkAdvisor)
Vendor Due Diligence (“VDD”) has always been a hot topic within the compliance industry, but the importance of operational due diligence (“ODD”) isn’t always mentioned in the conversation. When implementing a ODD program, registered investment advisers (“RIAs”) must be willing to do the hard work and take an even closer look at the back office operations of their service provider. “An effective ODD program takes a close look at the service provider’s business, compliance and operational risks to identity red flags”, Thomas D. Giachetti explains further. Towards the end of the article, Giachettii includes a list of documentation a robust ODD program would have and questions that RIAs should ask their providers.
4. Pursuing What Matters Most When You Go Independent (Author – Devin McGinley, InvestmentNews)
Since the start of the pandemic, more advisers are making the move to independence than ever before. According to the InvestmentNews Advisers on the Move database, moves to independent operations were up 2.6% in 2021 compared to 2019, with 1,530 individuals becoming registered investment advisers (“RIAs”). The overall theme for wanting to go independent is flexibility, whether that is how an adviser serves their clients, builds their practices, or manages their staff. No matter the decision, the adviser is now able to make it on their terms and without a manager looking over their shoulder. Anthony David of Adalan Private Wealth shares his perspective, “In the pandemic, and as we all as individuals go through tragedies or difficult situations, it’s really nice to know that I get to make the decision as far as what’s the best for my clients, best for my staff, best for my family. It’s nice having that level of control.”
5. After More Small Reg BI Cases, When Will the SEC’s Hammer Come Down? (Author – Tobias Salinger, Financial Planning)
As the number of SEC Customer Relationship Summary form (“Form CRS”) cases continues to grow, compliance experts and the rest of the industry are wondering when the SEC will start to take action. Many of the firms involved in these cases were in violation of the rule’s “most basic requirement” by failing to deliver their Form CRS to clients and posting the document on their website. There hasn’t been an official statement or timeline from the Commission or Chairman Gary Gensler, but experts are encouraging advisers to view these cases as “a wakeup call for those who need to strengthen their programs” and guidance on what not to do as a firm. Mitch Avnet, founder of Compliance Risk Concepts, said “regulators are never going to tell you how to get from A to B, they’re just going to tell you they expect you to. Anytime you have new regulator there’s going to be a grace period in terms of when regulators start enforcement actions.”
Don’t forget to check out last week’s top RIA compliance news articles that focus on regulatory Form CRS filing failures, the fiduciary rule, and the path to independence.