Top RIA Compliance News Articles for the Week of November 3, 2017

1. SEC Shows Off Cybersecurity Muscle Following EDGAR Breachs (Author- Ed Silverstein, ThinkAdvisor)

In wake of the EDGAR hack, the Securities and Exchange Commission (“SEC”) is doing everything possible to show that it takes cybersecurity very seriously. Though two new cybersecurity units have been set up, there are some concerns. Among them, how many cases will be brought, and how many full-time SEC employees will be assigned to the initiatives. Others however, have different perspectives. Attorney Joseph Moreno commented, “Unlike the SEC’s first specialized cyberunit, which was shuttered as part of an agency-wide reorganization in 2010, the new cyberunit seems likely to be well-resourced, well-staffed, and take point on high-technology threats to the capital markets and the investing public.” The units will not only bring cases, but will also provide guidance about cybersecurity to advisors.

2. Interesting Angles on the DOL’s Fiduciary Rule #69 (Author- Fred Reish, FredReish.com)

Fred Reish’s latest article on the DOL fiduciary rule covers compensation for advisors. The Best Interest Contract Exemption (“BICE”) is designed to ensure that compensation does not create a conflict of interest with the client. Reish analyzes situations that potentially could cause the biggest problems. Firstly, incentives. Reish explains that the DOL now requires advisors to have standards of operations to ensure the customer’s best interest are not compromised by advisor financial incentives. Other noted risks are bonuses and recruitment compensation. However, Reish advises, with the remaining elements of the DOL rule being further delayed, advisors should watch the updates closely, and keep an eye on possible high-risk situations.

3. Will SEC’s Proposed Database of Crooked Reps Do Enough? (Author- Margarida Correia, FinancialPlanning.com)

Jay Clayton, SEC Chairman, recently disclosed that the SEC will create a “searchable database of individuals who have been barred or suspended as a result of federal securities law violations.” Clayton says, “This resource is intended to make the prior actions of repeat offenders and fraudsters more visible to investors.” Clayton states that the database will mostly focus on unregistered individuals. While some wish that more could be done, such as the Financial Industry Regulatory Authority (“FINRA”) and the SEC better coordinating to catch violators, they do applaud the new database effort.

4. Markets Need a Single, Official Definition of “Fiduciary” (Author – David Trainer, WealthManagement.com)

David Trainer argues the definition of “fiduciary” has become quite fluid. He notes at least three different regulating authority definitions of the same word, and argues that some regulators have given up on it entirely. He notes that this also leaves the client’s best interests in limbo. Trainer lists traits that an advisor should have, compiled by WealthManagement.com. Among these are objectiveness and transparency. Trainer further presents the case that regulators should put forth a unified fiduciary definition of this basic industry-central word.

5. 7 Ways Morgan Stanley’s Protocol Exit Will Backfire (Author- Mark Elzweig, FinancialPlanning.com)
   

As widely reported, Morgan Stanley has recently left the Broker Protocol System. Mark Elzweig summarizes that Morgan Stanley is basically caging in its advisors and potentially creating pricey legal troubles for themselves in the future. Elzweig speculates the move came as a response to defecting top talent, but Elzweig hypothesizes it won’t do the firm any favors. He lists the reasons being that recruiting new advisors will be impossible; current employees will get out as soon as possible; and the publicity will be unfavorable.

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, and continued growth of the RIA industry. Be sure to check back next Friday for next week’s top articles!