Top RIA Compliance News Articles for the Week of April 9, 2016

1. Advisor’s Guide to DOL Fiduciary and the New Best Interests Contract (BIC) Requirement (Author- Michael Kitces, Nerd’s Eye View Blog)

Last week, the issuance of the final Department of Labor (DOL) fiduciary rule declaring that brokers can no longer conduct a number of prohibited transactions unless they agree to a Best Interest Contract (BIC) agreement with the client sparked tremendous media coverage. This piece by industry guru Michael Kitces is the best detailed recap of the rule we’ve seen yet. In particular, Kitces provides detailed analysis on the BIC exception for level-fee fiduciaries which could be quite relevant to many “fee only” RIA firms. Ultimately, Kitces concludes that the “Department of Labor was quite savvy in picking exactly which parts of the rule they conceded and which remained intact” and that many advisors in the broker-dealer world may “decide it’s easier to switch over and become a Level Fee Fiduciary, because there’s less ambiguity and legal danger…which perhaps is exactly what the very smart folks at the Department of Labor wanted to see happen in the first place.”

2. RIAS Expect to Make Some Changes to Comply with DOL Fiduciary Rule (Author- Liz Skinner, InvestmentNews)

While the impact of of the final DOL fiduciary rule on most RIA firms is expected to be rather minimal, Liz Skinner reports that investment advisory firms “will need to marginally modify their policies and procedures, adjust client agreements and other documents, as well as provide additional client disclosures.” Michael Kossman, Chief Operating Officer of Los Angeles-based Aspirant, notes that investment advisers may need to establish “new procedures…for discussions with prospective clients about the comprehensive services RIAs provide because those talks would include retirement assets, too.” There is also some industry debate around whether a broader shift to fiduciary advice will put fee pressure on existing RIA firms, however Skinner notes that “most RIAs, though, do not agree at this point that fee changes will be necessary.” 

3. A Veteran of Securities Law Killed His Weekend Reading All 1,000 Pages of the DOL Rule–And Has Takeaway to Share (Author- Irwin Stein, RIABiz)

Longtime securities lawyer, Irwin Stein, presents a more pessimistic take on the final DOL fiduciary rule. After a detailed review, he leads with “the brokerage industry got exactly what it wanted from the new DOL rule: a sufficiently new take on the old problem of getting advisors to put clients first but nebulous enough that reasonable doubt is none-too-difficult to take hold in arbiters’ minds.” In particular, Stein asserts that since the final rule still allows many of a client’s claims to end up in arbitration, it’s going to be difficult for a client to use the new rule to win cases. Check out this article to read more of Stein’s detailed review.

4. SEC Using More ‘Tactical’ Approach to Exams: Risk Chief (Author- Melanie Waddell, ThinkAdvisor)

Peter Driscoll, head of the new Securities and Exchange Commission (SEC) Office of Risk and Strategy, recently remarked that the SEC is taking a “much more tactical approach” to examining RIA firms compared to prior years. Melanie Waddell reports that the SEC is particularly focused on the time that has passed since a firm’s last exam, whether the firm has ever been examined before, types of investment product utilized, custody of client assets, overall firm size, whether a firm’s branch offices are concentrated near homes for the elderly for example, and many other factors when determining which investment advisory firms to prioritize for audits. Driscoll also notes that the agency is “really focused” on anti-money laundering (AML) violations. 

5. After DOL Rule, SEC Inches Toward Uniform Fiduciary Standard (Author- Kenneth Corbin, Financial Planning)

 After the Department of Labor (DOL) issued its final rule on fiduciary advice, questions are arising as to whether or not the SEC is now going to look to establish a uniform fiduciary standard. SEC chairwoman, Mary Jo White, was recently asked this question herself by Sen. John Boozman (R-Ark) who asked, “the SEC has more knowledge and technical expertise in this area, yet DOL has inflexibly pushed forward first. Where’s the SEC in its process of considering fiduciary changes?” Kenneth Corbin repors that Chairwoman White does believe the “SEC should harmonize the rules for investment advisors and broker-dealers serving retail clients.” While it seems unlikely that the SEC will act immediately on such a rule, this is a topic to continue to watch.

Also, make sure you check out The 5 DOL Fiduciary Rule Experts Every RIA Firm Should Follow and check back next Friday for next week’s top articles!