Top RIA Compliance News Articles for the Week of March 2, 2018

1. Cybersecurity Is ‘Top Risk’ for Financial Services Industry (Author- Emily Zulz, Financial Planning Magazine)

“Cybersecurity is one of the top risks of the financial services sector and the securities market more specifically, according to Christopher Hetner, senior cybersecurity advisor to the chairman of the Securities and Exchange Commission (“SEC”),” says Zulz. Hetner emphasized a united approach to combat the problem. The final goal for the SEC on this topic is to “develop robust protocols and dedicate sufficient resources to make firms and the markets more broadly uninviting.” Four main branches lead into the SEC’s strategy here. One of which is that cybersecurity should be part of a firm’s business strategy itself. The Treasury Department is also trying to stay ahead of this problem by assessing weaknesses, risk-management, and performing tests.

2. Advice Business Must Improve Succession Planning (Author- InvestmentNews)

Many advisors close to retirement have no idea who will take over for them when the time comes. The information comes from a study by Cerulli Associates. InvestmentNews writes, “Confirming widely known demographic trends, the Boston-based research firm found that although the adviser population is aging (the average age is 50), the majority have not made plans concerning succession.” Some have come up with the solution to team younger advisors with senior advisors to lead them, but InvestmentNews says there can be a problem with that as well, stating that managerial skills and financial advisory skills are very different things.

3. Watch What You Charge, With Or Without The Fiduciary Rule (Author- Tracey Longo, Financial Advisor Magazine)

“Financial advisors who charge more than their peers for products and services are in the greatest jeopardy under the concept of ‘reasonable compensation limits,’ the compliance idea that the Department of Labor has brought to the forefront with its fiduciary rule,” Longo begins. The concept however, came from the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Service (“IRS”), and according to Fred Reish, the limits aren’t going anywhere. The change from commissions to fees in the industry will stem from services, not the products sold, says Longo. “Reasonable compensation limits must also be determined by a transparent, competitive marketplace, as the rules have been interpreted by the DOL,” she writes. 

4. Interesting Angles on the DOL’s Fiduciary Rule #82 (Author- Fred Reish, FredReish.com)

Reish departs fom the subject of DOL rule myths in his 82nd article. Instead, he focuses on the “Share Class Selection Disclosure Initiative” (“SCSDI”) which the SEC implemented in February of this year. “Simply stated, the temporary program says that investment advisers who have received undisclosed 12b-1 fees can correct and self-report.” From the angle of the fiduciary rule, if an adviser is “actually managing the account,” the advisor cannot receive undisclosed compensation, only a stated fee. He explains the BICE would not apply here, as it only applies to non-discretionary advice. To close, Reish cautions advisors to do their research and know their financial regulations. 

5. Millennials At Greatest Risk Of Cryptocurrency Scams, Say Regulators (Author – Tracey Longo, Financial Advisor Magazine)

Cryptocurrency is the new fad these days, and millennials are the most susceptible to fall prey to deceit in this market area. Since millennials are most likely to use financial technology (“fintech”) solutions, says Longo, the correlation makes sense. “Eighty-four percent of the regulators in the survey said millennials were the most likely to use fintech products, while 41 percent said that cohort was most likely to fall prey to fraud through such technology,” Longo reports. This is according to a survey conducted by the North American Securities Administrators Association (“NASAA”). The SEC has recently been scrutinizing initial coin offerings (“ICOs”) and cryptocurrencies heavily. 

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the SEC SCSD Initiative, and the SEC cryptocurrency probe.  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.