Top RIA Compliance News Articles for the Week of September 10, 2016

1. SEC to Sweep Advisors Who Hire Those With Disciplinary History (Author- Melanie Waddell, ThinkAdvisor)

Melanie Waddell provides an update on a new risk alert issued this week by the the Securities and Exchange Commission (SEC) that announces the agency’s plans to conduct exams of RIA firms that “employ or contract with supervised persons with a disciplinary history”. The advisory firms chosen to be examined will be based on a number of factors outlined in this article. The Office of Compliance Inspections and Examinations (OCIE) also will focus the audits four key components: compliance program, proper disclosures, conflicts of interest, and marketing. The exams are expected to begin on October 1, 2017.

2. Fee-Only RIAs Still Need to Monitor Fiduciary Rule Exposures (Author- Ed McCarthy, LifeHealthPRO)

While fee-only RIA firms may have a much easier time complying with the new Department of Labor (DOL) fiduciary rule, such firms still need to understand the new rule’s applicability. Ed McMcarthy notes how a number of fee-only firms are approaching the rule which include creating “checklists for IRA rollovers” and “working to tighten up the documentation portion.” He also quotes Jason Roberts, one of our top 5 DOL fiduciary rule experts, who makes the case that an advisory firm “cannot cure a prohibited transaction through disclosure alone.” As it relates to the level-fee fiduciary exemption, Roberts also notes that advisors need to be aware of all of a situation’s aspects beginning with “the advisability of leaving that money in the plan or rolling over to an IRA” followed by how the assets that were rolled over into the IRA will ultimately be managed by the advisor. Be sure to check out this thoughtful piece for more details on how an RIA firm can best comply with the DOL fiduciary rule.

3. SEC Chairwoman Mary Jo White Says Agency Mulling Fiduciary Duty (Author- Mark Schoeff Jr., InvestmentNews)

Mark Schoeff Jr. writes that while “SEC members are mulling a staff report on a potential rule to raise retail investment standards” commonly referred to as a uniform fiduciary rule, the “agency is not any closer to taking action.” SEC Chairwoman Mary Jo White states that “it’s not going to be quick” in reference to the timing on when such a proposed rule may be released. However, Ms. White makes it clear in her statements that she “strongly” supports a fiduciary rule, but also states that “I’m one vote” implying that she does not have the sole authority to push such a rule forward. 

4. What If Your Life Gets Hacked? (Author- Ted Knutson, Financial Advisor Magazine)

While cybersecurity has been a major topic in regards to the potential hacking an advisory firm’s systems, Ted Knutson writes that many advisors have not thought much about the threats posed by “smart” household items or even one’s car being hacked. Knutson writes that “many household items are now computerized and connected to the web and hackers are taking advantage of the ‘Internet of Things.'” However, the topic of ransomware that is described in this piece is a cyber security threat that RIA firms also need to become more educated around. In regards to best practices, Knutson cites the most recent convention wisdom around training RIA employees on information security which includes “to only go to websites you are sure you can trust. Only open emails from those you know. Never click on attachments from a seemingly appealing but unfamiliar sender. And religiously intall all software patches sent to you ASAP.”

5. Tough Choice When Going Independent: RIA or BD Affiliate? (Author- Katie Kuehner-Hebert, Financial Planning)

As Katie Kuehner-Hebert writes, “Advisors who are striking out on their own need to decide whether to be a registered investment adviser or affiliated with a broker-dealer.” She quotes a number of advisors who have recently started their own RIA firms including Julie Ford who notes that “I’m in the control of the direction of my firm, the people I serve and the services I provide.” Claudia Mott, another individual who has started her own RIA firm, echoes Ms. Ford when stressing the ability to make independent decisions under the independent RIA model. This piece does a great job of breaking down the benefits and drawbacks of creating an RIA firm versus joining an established practice. 

Don’t forget to check out last week’s top RIA compliance news articles on business continuity planning and 3rd party RIA audits. Be sure to check back next Friday for next week’s top articles!