Top RIA Compliance News Articles for the Week of April 30, 2016

1. DOL Fiduciary Rule: What “Best Interests” Means, Impacts on Financial Services (Author- Ron A. Rhoades, JD, CFP., Scholarly Financial Planner)

This week’s recap of top RIA compliance stories once again centers around the the new Department of Labor (DOL) fiduciary rule. To kick things off, the top article comes from Ron A. Rhoades who was also recently highlighted in our post titled “The 5 DOL Fiduciary Rule Experts Every RIA Firm Should Follow.” Rhoades does not dissapoint with this thoughtful overview of the new rule. Ultimately, Rhoades concludes that, “If I am correct, then the DOL rule – with its application of the fiduciary standard to DB, DC and IRA accounts…will be transformational in financial services.” In addition, he makes the case that the RIA industry will likely continue to look more like the accounting and legal industries in the coming years as he writes, “similar to the legal and accounting professions, many mid-size regional and local firms will continue to expand in number. And, it is likely that the majority of advisers will reside in 1-5 person firms.” We too share a similar view here at RIA in a Box and believe the investment adviser industry will continue to not only grow, but also become more fragmented. Be sure to check out this must read.

2. Don’t Let BICE Hubub Drown Out the Burden of DOL Best Interest Standard (Author- Fred Reish, ThinkAdvisor)

We next to continue on the DOL fiduciary rule theme with another piece from one of the “Top 5 DOL Fiduciary Rule Experts Every RIA Firm Should Follow.” In this detailed piece, Fred Reish argues that, “while the burdens imposed by the best interest contract exemption (BICE) are substantial, it appears that many people are overlooking the equally significant impact of the best interest standard of care.” Reish then goes on to note that, “the ‘best interest’ standard is a combination of ERISA’s prudent man rule and duty of loyalty.” Reish’s reference to the prudent man rule is significant because he believes many IRA accounts are not managed to this standard today. In order to meet this new standard, many advisors will need to do additional diligence and information gathering. Be sure to check out this article for more details on a component of the DOL fiduciary rule that has not received as much coverage to date.

3. The Fiduciary Journey (Author- Mark Schoeff Jr., InvestmentNews)

Continuing on the DOL fiduciary rule theme, this next in-depth piece by Mark Schoeff tracks the long behind the scenes journey of the new rule itself. In particular, Schoeff discusses the involvment of Phillis Borzi, the Assistant Secretary for Employee Benefits Security at the DOL, who is now viewed by many to be a key architect of the DOL fiduciary rule. Schoeff goes on to note that Borzi is “credited with pushing through a nearly unprecedented wall of opposition”. While quite insightful, this is not a quick read, but will be of particular interest to those who are curious as to just how exactly this new transformative rule came about over many years. 

4. Reinforcing the Culture of Compliance, Industry-Wide (Author- Dale Brown, InvestmentNews)

Dale Brown of the Financial Services Institute (FSI) presents the case that whether advisors are aware or not, a company’s culture has a major impact on the firm’s long-term success. Brown also makes the case that a “culture of compliance” needs to be part of a firm’s overall culture. He goes to present these five actionable steps that firms can take to ensure compliance is getting the proper attention within a firm: 1) Be proactive in taking visible action, 2) Demonstrate that customer protection is paramount, 3) Allocate proper resources for compliance, 4) Spread the message to OSJ and branch managers, and 5) Mind the details. While this piece may be particularly relevant to its intended audience of independent broker dealer (IBD) firms, it is still a good read for the Chief Compliance Officer (CCO) of any RIA firm as well.

5. Understanding the Fiduciary Rule’s Best Interest Contract Exemption (Author- Christopher Robbins, Financial Advisor)

With this last article, we shift back to the DOL fiduciary rule. In this piece, Christopher Robbins takes a closer look at the BICE component of the new rule. In particular, Robbins references a recent webinar hosted by Marcia Wagner (and another one of our “Top 5 DOL Fiduciary Rule Experts Every RIA Firm Should Follow“). In the webinar, Wagner discusses the ins and outs of the BICE and leads Robbins to the conclustion that, “the exemption will permit firms to use many of their current compensation models as long as they acknowledge their fiduciary status, give prudent and impartial advice, disclose potential conflicts of interest and information about their revenue model, avoid misleading statements and receive no more than reasonable compensation.” However, Wagner does state in her webinar that, “BICE does not provide relief from any variable compensation rising from the discretionary advice of fiduciary advisors.” The streamlined BIC for level-fee fiduciaries is also discussed in depth in this article and will be of particular interest to fee-only RIA firms.

Be sure to check out last week’s top RIA compliance news articles and check back next Friday for next week’s top articles!