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. This week’s recap focuses on the Securities and Exchange Commission’s (“SEC”) share-class crackdown, the overwhelming discovery of COVID-19 related fraud, and the biggest news in fintech from last month. Here’s our top investment adviser compliance articles for the week of August 14th, 2020:
1. 6 Form CRS Facts Advisors Should Keep in Mind: RIA in a Box (Author – Jeff Berman, ThinkAdvisor)
Even though the June 30th deadline has passed, there are still advisors that have not submitted their Form CRS to the SEC. Chris DiTata, vice president and general counsel at RIA in a Box, discusses the six factors an advisor needs to keep in mind if they are still waiting to file their Form CRS or need to make changes. As a result of COVID-19, the wealth management industry has become more flexible and it is inevitable that changes will be made moving forward. For example, DiTata explains “we have seen some firms that have already made edits to their Form CRS to disclose new fee structures, new conflicts of interest and other pertinent details. Edits are definitely allowed and encouraged. When the Form CRS changes in a material manner, you need to update it.” The SEC will also be holding a roundtable this fall “to provide an additional opportunity to share best practices and general feedback”. Learn more about the other four factors in the article linked above.
2. SEC share-class crackdown could spell the end for 12b-1 fees (Author – Mark Schoeff Jr., InvestmentNews)
Mark Schoeff Jr. discusses how the SEC’s recent actions surrounding disclosures of payments by funds to financial advisors has many in the industry thinking the SEC is trying to eliminate 12b-1 fees all together. The violations flagged by the SEC involve dually registered investment advisors who steer their clients toward funds with 12b-1 fees and then send the 12b-1 earnings to their brokerage firm. Schoeff added, “The SEC enforcement cases have not said it’s inappropriate for investment advisers to pay 12b-1 fees to brokers. The problem is that the advisers are violating their fiduciary duty by not telling their clients about the conflict of interest created by the 12b-1 fee revenue.” For the past few years, the SEC has been cracking down on these inadequate disclosures, returning almost $139 million to the investors that were effected.
3. State Regulators Uncovered 244 COVID-19-related Frauds (Author – Diana Britton, WealthManagement)
Since COVID-19 became a true threat in the United States this spring, the North American Securities Administrators Association (“NASAA”) has been warning investors to keep an eye out for investment scams and conmen trying to take advantage of the situation. As of this week, the NASAA’s COVID-19 Enforcement Task Force has discovered and working to dismantle “244 schemes aimed at defrauding investors and consumers, including 154 investment-related schemes.” The task force was formed in April and consists of 111 investigators from 44 jurisdictions and has already initiated 220 actions against the different schemes, including administrative action and cease-and-desist.
4. Big Brother is Watching Traders at Home for Compliance Slips (Author – Bloomberg News, FinancialPlanning)
As of a result of the increase in telecommunications and remote work, the finance industry has seen an increase in surveillance needs as well. According to Chris Wooten, executive vice president at NICE Actimize, a compliance, risk and financial-crime software company, there has been a huge surge of interest for surveillance technology “such as machine learning, that can help employers catch unusual employee behavior.” Of the 140 financial firms NICE Actimize surveys, 76% said they “expect monitoring and surveillance will increase over the next three years. Almost 20% of respondents said those new enforcements would apply to all employees. Wooten stated, “clearly this reflects the investments that financial institutions are making now, or will be making in the future.”
5. Riskalyze Fintech Report Card: July 2020 (Author – Aaron Klein, WealthManagement)
Aaron Klein, CEO of Riskalyze, shares his thoughts on the industry’s biggest news for the month of July. Among the top mentions are new additions to Reality Shares’ board and RIA in a Box releasing their mobile app. Reality Shares named Tyrone Ross to their board of directors and as the CEO of their new alternative investments platform. Klein adds, “Tyrone has been a leading advocate for cryptocurrency and improving financial literacy for youth and people of all backgrounds in America.” Klein gives a thumbs-up to RIA in a Box’s new app, stating that with the firm’s “rapidly-ramping levels of innovation”, he wouldn’t be surprised if there is more to come following the apps initial release.
Don’t forget to check out last week’s top RIA compliance news articles that focus on the Securities and Exchange Commission’s (“SEC”) latest risk alert, increased spending on cybersecurity as a result of COVID-19, and how long it truly takes to start a RIA firm.