Top RIA Compliance News Articles for the Week of April 6, 2018

1. SEC to Reveal Three Broker Conduct Rule Proposals Next Week (Author- Tracey Longo, Financial Advisor Magazine)

“The SEC will consider three new standard of conduct recommendations for brokers at an open meeting on April 18, Dalia Bass, SEC director of investment management, said at the agency’s National Compliance Outreach Seminar Thursday,” Longo reports. While investment advisers adhere to a fiduciary standard, brokers comply with a suitability standard. Longo notes that brokers and advisors may be melding into the same standard. The SEC has stated that the goal here is to alleviate confusion and provide much-needed clarity for industry professionals. Skeptics worry that the proposed rules may create “redundant compliance costs” but this is definitely an issue to follow closely in the coming weeks and months especially given the current uncertainty of the DOL fiduciary rule.

2. ‘Best Interests’ and ‘Fiduciary’ Aren’t the Same, So Which Will the SEC Choose? (Author- Mark Schoeff Jr., InvestmentNews)

Mark Schoeff delves into the confusion over semantics in the investment world with a throwback. “Oops. Like Britney Spears, I did it again. I referred to the pending SEC rule using the term ‘fiduciary.’ As sources have pointed out to me, the SEC proposal may not emphasize that word — or even mention it much,” Schoeff quips. He states that the main crux of the SEC’s new proposal may be how they define ‘best interest’, seeing how “part of the definition of ‘fiduciary’ is to be legally bound to another person’s ‘best interests'”. On a different level, the suitability standard applies once again, this time to registered representatives as opposed to investment advisors.

3. Interesting Angles on the DOL’s Fiduciary Rule #86 (Author- Fred Reish, FredReish.com)

With the fiduciary rule vacated in the 5th Circuit Court and hanging in the balance, Reish asks, “what’s next?” and “who is a fiduciary?” Reish operates on the theory that the 5th Circuit ruling is final. In this case, “the old 5-part fiduciary test will automatically be reinstated”. So, a non-discretionary investment advisor would need to, for example, “make investment or insurance recommendations for compensation”, and “provide the advice on a regular basis”, to name just two. Reish says that his main point is that if the ruling is final, most advisors would not lose their fiduciary status. “For example, RIAs may generally be fiduciaries, even in the IRA world, because they provide investment services on a regular—or ongoing—basis and there is usually an understanding that the advice is individualized.”

4. SEC Warns Advisers to Toe the Line on Fees (Author- Jeff Benjamin, InvestmentNews)

Yesterday, the SEC Office of Compliance Inspections and Examinations released a new risk alert on “Advisory Fee and Expense Compliance Issues Identified in Examinations of Investment Advisers.” Benjamin writes, “The four-page alert, described by some compliance experts as a warning that the SEC is focused on how fees are charged, cited instances of fees being charged on incorrect account valuations and examples of advisers not following the fee guidelines presented in their own Form ADV filings.” Also highlighted are issues related to rebates, lack of fee disclosures, and other fee miscalculation issues. According to a former SEC examiner, punitive measures can vary, and are often determined by the severity of the violation, and the length of time it has taken place. Fee billing issues have also long been one of the most common compliance issues for state-registered RIA firms as well.

5.  Elite Advisor Firms Aren’t Feeling Fee Pressures: Pershing (Author – Michael Fischer, ThinkAdvisor)

Pershing Advisor Solutions conducted a survey last winter at their Elite Advisory Summit. The findings indicated that 84% “of some of the biggest U.S. financial advisory firms did not change their pricing last year”. The study also found that the majority said that their clients aren’t talking about lowering prices either. In fact, a small amount of firms increased fees. Most say that the key is presenting value besides the basics. Advisors are spreading out their skills, wading into tax planning, alternative investments, private banking, and philanthropic investments. In order to obtain clients and grow businesses firms believe that marketing will be the biggest tool in the box for this year. Another driver: new fintech. The biggest challenge, they say, will be a talent shortage. 

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the CFP Board’s potential revision of their fiduciary standard, and wirehouse advisors going independent.  Be sure to check back next Friday for next week’s top articles! 

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.