Each week we’re giving you our weekly report highlighting the top compliance news articles from various industry news publications. We have selected the most relevant and important news articles related to registered investment adviser (RIA) compliance and regulatory issues. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of October 22, 2016:
- Advisers Offer Tips For Surviving a Cybersecurity Exam (Author- Mark Schoeff Jr., Investment News)
Advisers that have already experienced a cybersecurity exam conducted by the Securities and Exchange Commission (SEC) are warning fellow investment advisers who have not experienced one that they should not wait until exam time to strengthen their policies, procedures, and systems related to information security. Advisers Robert Ross, Chief Compliance Officer of Sontag Advisory, and Trevor Hicks, director of technology of Wetherby Asset Management, were on a panel at this week’s Schwab Impact conference answering questions and providing tips so other advisers can be prepared when their time to be examined comes around. As Hicks notes, “you can’t start preparing soon enough,” and we continue to see the SEC focused on RIA information security.
- Succession Planning for Advisors (Author- Andrew Crowell, Wealth Management)
Succession planning is a topic that all state and SEC-registered RIA firms need to be focused on. As Andrew Crowell writes, “The aging advisor reality is prompting business successions across our industry. Some of these are hastily enacted shotgun marriages, while others are thoughtfully crafted transition plans that are relatively seamless to clients.” Crowell outlines some suggested steps that firms should take in regards to thoughtful succession planning including 1) ensuring proper time and preparation 2) proper exchange of client background information, and 3) the importance of the “inheriting advisor” beginning to establish regular communication with each client.
- The SEC is Watching Product Fees, Says Schwab (Author- Dan Jamieson, Financial Advisor)
At this week’s Schwab Impact conference, Michael Townsend, vice president of Schwab’s office of regulatory affairs, spoke that, “the regulators want to make sure in the exam process `that you` can justify why you didn’t recommend the lowest cost option.” As Dan Jamieson writes, “there may be reasons for some higher cost recommendations, but advisors need to be able to document those reasons.” With the upcoming implementation of the Department of Labor (DOL) fiduciary rule, advisors should expect even more scrutiny to be placed on the choice and cost of underlying investment products. Townsend also spoke to the possibility of third party audits of SEC-registered RIA firms in the future.
- Schwab: FINRA Could Could Come Back to Haunt RIAs (Author- Diana Britton, Wealth Management)
In 2012, a failed bill that was proposed would have allowed one or more self-regulatory organizations (SROs) to oversee investment advisers. However, as Jeff Brown, senior vice president and head of legislative and regulatory affairs at Charles Schwab notes, “even bad ideas never die.” According to Brown, if a uniform fiduciary standard ultimately is introduced by the SEC, it could once again open the door to FINRA having the opportunity to regulate RIA firms. In such a scenario, RIAs could see increased compliance costs and a less differentiated business model.
- Errors of Commission: AUM Fees Are Better Business (Author- Bob Clark, Think Advisor)
The financial advisory industry is seeing numerous comments expressed by the broker dealer community around the unfairness of the new DOL fiduciary rules for retirement account advisors. Bob Clark, editor-at-large for Investment Advisor Magazine, shares “today’s retail investors bear myriad costs far in excess of either an upfront commission or an annual 1% portfolio management fee.” Clark makes the case that, “independent advisors have been making this transition to AUM fees for three decades now. It’s a better business model for clients as well as advisors.” Be sure to check out this thoughtful editorial.
Don’t forget to check out last week’s top RIA compliance news articles on new required social media disclosures and more independent broker dealer (IBD) representatives starting their own RIA firm. Be sure to check back next Friday for next week’s top articles!