Top RIA Compliance News Articles for the Week of May 18, 2018

1. Is Flight to Independence the Reason Wirehouses Are Leaving Protocol? (Author- Bob Veres, Financial-Planning.com)

Since its inception, broker protocol has benefited, “very few companies”. Poaching brokers for their clientele was commonplace, as was the practice of paying out huge amounts of money to do so. To combat this, brokerages would turn to litigation, filing restraining orders on deserters. The protocol mitigated this by conceding clients’ contact information to the departing broker. However, many of these departing brokers are now moving to independent RIA firms. Bob Veres writes, “The renunciation of the protocol by three significant firms, and uncertainty around two more, tells me that the balance of power between independent advisors and the larger sales houses has finally reached a tipping point.” He also speculates that firms could create a new protocol specifically for this situation.

2. Finra Anticipates Oversight Role for SEC Advice Rule (Author- Mark Shoeff Jr., InvestmentNews)

FINRA is set to work with the SEC in supporting their new investment advice standard should it come to fruition, according to FINRA chief, Robert Cook. He states he expects the SEC to reach out for assistance in enforcing the regulation that brokers act in the best interests of their clients. This also follows a trend of FINRA continuing to reform its examination program. “FINRA is reforming its examination program. It is basing the depth and breadth of examinations on a firm’s risk profile. The more danger a firm presents to investors or the market, the more frequently and in-depth it will be examined,” says Schoeff. This effort, along with outreach, is known as FINRA 360. 

3. Interesting Angles on the DOL’s Fiduciary Rule #91 (Author- Fred Reish, FredReish.com)

In his 91st article regarding the DOL fiduciary rule, Reish compares the new SEC standards of care to the old BICE. The new Regulation Best Interest (Reg BI) focuses more on conflicts of interests and protecting against them. Semantics is also playing a role here. The Reg BI uses “financial incentives”, while the DOL rule used “compensation”, but Reish says it amounts to the same thing; that brokers cannot receive compensation from fiduciary recommendations “where the compensation is paid by a third party (for example, insurance commissions or 12b-1 fees) or where the compensation is variable, based on the recommendations (for example, commissions on securities transactions),” says Reish. In essence, Reish states that in order to comply with the new standards, the old rule must be understood. 

4. 5th Circuit Again Denies State’s Intervention in DOL Fiduciary Ruling (Author- Melanie Waddell, ThinkAdvisor)

The 5th Circuit Court of Appeals has ordered a motion for reconsideration of the DOL rule denied. The states of California, New York, and Oregon had been fighting to keep the rule alive, but the court said no again. Waddell reports their argument, “The state AGs had argued that ‘given that posture, the exceptional importance of the issues, and the grave harm the states will suffer as a result of the panel opinion — billions of dollars in lost retirement income to their residents and tens of millions of dollars in lost tax revenue — the states respectfully request that the court reconsider its decision.'” Despite this failure, the rule will remain in effect until the court issues an official mandate to vacate.

5.  Advisors Swamped by Documentation (Author – Jadah Riley, Financial Advisor Magazine)

“Advisors struggle to remain compliant, complete documentation and spend time in person with clients, says a new report from Nuance Communications Inc.”, Riley reports. Nearly 90% of industry professionals say documentation needs “affect their ability to produce thorough and timely reports, record, and client notes.” Some say they spend upwards of 3 hours a day doing so. Though technology does exist to make this easier, many find the software hard to use. Therefore, they are turning to things like notes and templates to remain compliant. Riley says that the study suggests that though existing tech is unsatisfactory, advisors are willing to try software if it’s more specified to their needs, and more intuitive. A majority of respondents said they’d be interested in new technologies. 

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the Secure Open Data Access framework, and growing regulatory concerns over initial coin offerings.  Be sure to check back next Friday for next week’s top articles! 

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.