Top RIA Compliance News Articles for the Week of December 7, 2018

1.  Prank Call? Nope, It’s a surprise SEC Audit (Author- Sherry Delaney, FinancialPlanning)

Sherry Delaney, managing partner and chief financial officer for New Market Wealth Management, shares the story of her surprise SEC Audit and tips on how to prepare. With no chief compliance officer, a small number of employees, two partners heading to Europe, and only two weeks to prepare, Delaney and her team worked tirelessly to overcome this challenge. Delaney also highlights how “throughout the audit, we went to great lengths to build a rapport with the auditors/” Click here to read what they did. 

2. RIA in a Box has a new compliance tool to help RIAs with audits (Author – Ryan W. Neal, InvestmentNews)

Earlier this week, we officially launched our new Audit Prep Tool as a part of our MyRIACompliance (“MRC”) compliance platform to help firms prepare for both state and SEC examinations. This latest innovation stems from an effort to help clients seamlessly handle the exam process while maximizing their time and efficiency. Ryan Neal details the Audit Prep tool features that allow its users to take a holistic approach to regulatory exams by providing guidance and automation before and after an audit. RIA in a Box President, GJ King, notes “going through an audit is one of the most stressful things we see our clients experience.” 

3. Clayton tells lawmakers that advisers can skirt fiduciary standard (Author- Mark Schoeff Jr., InvestmentNews)

In a recent appearance before lawmakers, SEC Chairman Jay Clayton points out that under current SEC guidelines, advisers are able to bypass the “baseline standard” to act in the best interest of their clients through exceptions in client agreements. While Clayton did not specify a timeline for a final rule on the SEC’s final Regulation Best Interest proposal, he says that this ultimate goal of this reform is to, “hold brokers to the same fundamental requirement as advisers — that they must act in the best interests of their clients — while keeping adviser and broker regulation separate.”

4. SEC May Use Same Words to Describe Broker, Advisor Standard: Clayton (Author- Melanie Waddell, ThinkAdvisor)

During an SEC oversight hearing on Tuesday held by the Senate Banking Committee, SEC Chairman Jay Clayton and Senator Elizabeth Warren, D-Mass. debated over the language used to describe the standard of conduct for advisers and brokers. Senator Warren argued that investors do not understand the difference between brokers and advisers, therefore, cannot be clear on the definition of the fiduciary standard for investment advisers and how it differs from the best interest standard for advisors. Clayton wants not only the current consent-based approach in the advisor side to be understood, but says “on the broker side, the fundamental duty is going to be that the broker cannot put her or his interests ahead of the clients.”

5. SEC Looks Deeper at Advisors’ Share-Class Use, Revenue Sharing  (Author- Melanie Waddell, ThinkAdvisor)

Melanie Waddell reports that, “The SEC is targeting advisors who didn’t make voluntary 12b-1 fee disclosures ‘but perhaps should have,’ attorneys say.” The SEC’s enforcement division are investigating firms that did not self-report revenue share-class violations. Under this initiative, the SEC has extended the relevant time period back to 2013 and also is requesting all documents and data relevant to revenue sharing payments. Waddell walks through Evershed Sutherland’s legal alert in detail.

Don’t forget to check out last week’s top RIA compliance news articles on the Regulation Best Interest Proposal, the SEC’s 2019 regulatory agenda, and RIAs firms attempting to conceal mutual fund share class violations. Be sure to check back next Friday for next week’s top articles!