Top RIA compliance news articles for the week of Dec. 23, 2022

Data At Rest Could Be At Risk (Author – Helen Johnson, Wealth Management)

In this article, COMPLY Chief Technology Officer Helen Johnson critically assesses the efficacy of cybersecurity measures, providing tactical strategies for firms who are victims of a cyberattack. Johnson points out, “organizations cannot stop themselves from ever being attacked. What cybersecurity teams should focus on is how to swiftly respond to an attack including how to quickly implement a root cause analysis and remediation plan and how to proactively protect sensitive and/or private data if it’s ever stolen.”

How can firms better protect their sensitive data? The Swiss Cheese Defense Method. Which entails:

• Additional safeguards to protect data if there is a breach.
• Multiple layers of encryptions to thwart malicious attackers.
• Remote lockdowns or wipe-downs of stolen or lost hardware.
• Development of a cyber vault disconnected from the existing network.

RIAs Open to New Billing Methods, Study Shows (Author – Jeff Berman, Think Advisor)

A recent study showcased the evolution of billing methodologies for advisory firms. In the past, the majority of firms relied on quarterly, in advance billing, however, the industry has now progressed to monthly billing cycles and flat fee billing. Why? Technology enabling advisory firms to adjust billing methodologies to better suit their needs.

“Moving to a monthly billing `cycle` not only smooths out the cash flow for the advisor, the advisor now gets paid 12 times a year but they’re taking 12 snapshots a year, which is likely more fair to both parties as well.”

Advisers anticipate retirement-planning flexibility SECURE 2.0 offer (Author – Mark Schoeff Jr., Investment News)

SECURE 2.0, a measure recently approved by the House, includes 92 provisions, which could provide advisers with increased flexibility and opportunity to serve clients. An area of significant note is the reform which ultimately raises the required minimum distribution age to 75 by 2033.

One commenter stated SECURE 2.0, “allows `advisers` to become experts and customize their service.” The article notes, advisers will need to “delve into the bill,” closely examining the varying effective dates and specifics within the bill regarding rollovers and various other policies.

Discretionary Management of IRAs: Conflicts and Prohibited Transactions (Author – Fred Reish, FredReish.com)

This article speaks to the potential conflict of interest and prohibited transactions which can occur in the management of IRAs. Noted within the article, “a fiduciary adviser cannot manage an IRA’s investments in a way that benefits the adviser beyond the negotiated advisory fee.” Fred Reish highlights the issue of fiduciary advisers moving assets between portfolios, which can result in a violation of the prohibited transaction rule when advisory fees are increased based on that move. Instead, the article suggests implementing a blended fee or changing the allocation to nondiscretionary to ensure management of the IRA does not violate any prohibited transaction rules and is always in the client’s best interest.

IAA Says SEC’s Proposed Outsourcing Regs Are Impractical (Author – Tracey Longo, Financial Advisor)

The SEC’s proposed outsourcing regulation continues to be a point of focus for the industry, with commenters highlighting critical problems within the proposal and the negative impact it could have on the industry. While many agree the goal of the proposed regulation is founded, the Investment Adviser Association (IAA) notes certain “practical difficulties” in its opposition.

“It is hard to believe that service providers would voluntarily subject themselves to potential legal or regulatory liability…by providing assurances that they will be involved in the adviser’s compliance efforts,” said `Gail` Bernstein, who argued that it seems more likely that service providers will either decline to provide the service or charge a sufficiently high price to cover their added liability.

The likelihood that many or most service providers would forgo working with the advisory industry entirely is unlikely, but the proposal “would result in advisors not being able to find a provider for a service that the firm believes is in the client’s best interest,” she concluded.”

Don’t forget to check out last week’s top RIA compliance news articles recapping the top 2022 regulations from the SEC and the Financial Industry Regulatory Authority (FINRA), the market’s response to a proposed Department of Labor (DOL) rule, a new bill which could require the SEC to allow e-delivery for regulatory documents, potential sweeping market reform from Chair Gensler and a look at the risk and opportunity of cryptocurrency.