Top RIA Compliance News Articles for the Week of March 16, 2018

1. SEC Forging Ahead on Fiduciary rule Despite DOL Rule Decision in 5th Circuit (Author- Mark Schoeff Jr., InvestmentNews)

The SEC will be moving forward with work on a fiduciary rule, according to Jay Clayton, SEC Chairman. Though the DOL fiduciary rule was already in effect at least in parts, the latest court ruling has vacated it. At the earliest, Clayton says, the rest of the verbiage on the rule will be ready by summer. As far as an appeal goes, administration officials are not sure it will happen, though some see this as an opportunity to to reset the structure with fresh eyes. Schoeff writes, “Mr. Clayton suggested that an SEC rule should set the framework for regulating a client’s interactions with an investment adviser or broker, which he said could now involve up to five different regulators, depending on the products in the client’s account.”

2. Fifth Circuit Vacates Fiduciary Rule (Author- DrinkerBiddle)

Many know that the DOL fiduciary rule was vacated by the Fifth Circuit Court of Appeals last week, but what does that mean? According to DrinkerBiddle, “The decision is sweeping: it rejects the regulation re-defining fiduciary investment advice, as well as the new prohibited transaction exemptions and modifications to old exemptions adopted along with the regulation. The majority decision refers to all of these as the “Fiduciary Rule.” The main arguments rested on the DOL overstepping its bounds, and that it “acted arbitrarily”. The DOL can appeal the ruling, so long as it does so within 45 days from “entry of the judgment”. In the meantime, the ruling is scheduled to take effect on May 7th of this year. DrinkerBiddle advises industry professionals that at least until this date, the DOL fiduciary rule is still technically in effect. 

3. When SEC Visits Your Firm, Will You Be Ready? (Author- Kenneth Corbin, FinancialPlanning.com)

Like any test, SEC examinations require preparation. Kenneth Corbin lists a few things advisors should pay specific attention to during the examination process, such as conflicts of interest, disclosures, and up-to-date manuals. Corbin also speculates that the SEC’s requests for documents are usually “overly broad”, which can put a burden on the advisor. Corbin also assembles a collection of seven things one should do prior to an audit. Firstly, get all the help you need. Corbin also pushes the indispensability of “frequent communication with the SEC’s exam team and suggests that firms consider the SEC’s initial document request as the opening gambit in what should be an ongoing negotiation process.” Corbin also suggests coordinating a mock audit, just to be extra prepared. 

4. What Advisors Think About the Broker Protocol (Author- Janet Levaux , ThinkAdvisor)

“Fidelity recently surveyed a group of financial advisors across different segments of the business about the impact of major firms leaving the Protocol for Broker Recruiting,” says Janet Levaux with ThinkAdvisor. Though she says the results are mixed, the overall feeling of wirehouses leaving the protocol is not good. “44% of those surveyed by Fidelity say departures from the protocol would affect their ability to bring clients with them to their new firm,” Leveaux reports. A third of respondents believe major firms will also be impacted negatively.

5. What If You Found Out You Were Really a Ghost? (Author – Megan Carpenter, InvestmentNews)

Megan Carpenter, CEO and co-founder of FiComm Partners, alludes to movies such as “The Sixth Sense”, “The Others”, and “Beetlejuice” (don’t worry, no spoilers), in order to to explain herself here. According to movie tropes, ghosts cannot be seen. The same is true for an RIA that has “no online presence”. In the age of Google, potential clients are going to seek out advising options online first. Most Millennials in fact, always start any endeavor with a Google search. Carpenter states, “One John Hancock study found that 60% of investors prefer researching financial services online.” It is important to be aware of what clients and prospects see when they look for you online. Carpenter suggests this situation may be the one time it’s a good idea to Google yourself. And of course, remember that any online presence should be treated like any other form of advertising.

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the SEC’s discussion on Form ADV and the Custody Rule, and the new proposed Senior Safe Act.  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.