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 cybersecurity, the Department of Labor (“DOL”) fiduciary rule, and broker protocol. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of December 22, 2017:
- 6 Basic Protections to Shore Up Cyber Moats (Author- Ann Marsh, Financial Planning)
The founder of Financial Computer Services, a cybersecurity consulting firm in New Jersey, believes that few financial advisors are taking the necessary steps to keep client data safe. Marsh quotes Brian Edelman who states, “`But` firms rarely elevate cybersecurity to the same level of importance, in terms of both budgeting and strategic planning.” Edelman has put forward a basic checklist to assist with cybersecurity. The list includes items like secure messaging, multi-factor authorization, and whole disc encryption, which allows a person to remotely wipe hard discs on lost or stolen computers . Marsh points out that all six items on the list are meant to be used in cooperation with each other.
- Fake Comments Hit Regulators Seeking Input on Proposed Rules (Author- Ryan W. Neal, InvestmentNews)
Neal cites a recent Wall Street Journal article which reports that some comments the Department of Labor requested in regards to the DOL fiduciary rule came from bots or hackers, and may be fake. Most of these suspected comments were in opposition to the rule. The Consumer Financial Protection Bureau has faced similar situations, as has the Securities and Exchange Commission. Still, though federal agencies are obligated to collect comments, they are “not required to heed them”, which Neal argues, takes the teeth out of fake comments. The CFPB states that they do not verify who posts comments, because the content is the important part.
- Senate Approves New SEC Commissioners, Assistant Secretary of Labor (Author- Diana Britton, Financial Advisor Magazine)
For two years, the SEC’s commission has been a few shy of a full deck of commissioners. But on December 21, the Senate remedied this by approving two commissioners, Hester Peirce and Robert Jackson, Jr. The DOL will also receive a new assistant secretary of labor, Preston Rutledge. An exhaustive set of hearings in front of the Senate took place in October, and the candidates were grilled on several topics. “Many of the questions focused on why the SEC had not written rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The committee and nominees also spoke about executive compensation clawbacks, company disclosures and cybersecurity, as well as FINRA, the self-regulatory organization overseen by the SEC.”
- Assets in Fiduciary Accounts Grow to 42% of Total (Author- InvestmentNews)
“Regardless of how regulators resolve the fiduciary issue, more client assets than ever are being held to a fiduciary standard, according to a report by Cerulli Associates,” InvestmentNews writes. The 42% figure is up from 25% in 2005. Cerulli placed emphasis on the fact that soon every step taken with clients will have a fiduciary concern. While this is arguably good for consumers, Cerulli found that there is a tendency for broker-deals to lose motivation for adding new clients because of fiduciary regulation and uncertainty. Cerulli also focused on the fact that advisers and sales teams need to keep extensive records to justify “the use of each product”.
- FAs Warned: Ensure Your Clients Understand the Broker Protocol (Author – Alex Padalka, FinancialAdvisor IQ)
Two wirehouse firms have already left the broker protocol. So what if a client’s advisor leaves? The client may be left in the lurch, most likely, Padalka asserts. This is why it is important that investors understand the Protocol. “Clients need to understand that, regardless of whether the firm is a signee, their advisor is banned from telling them about their intentions before their departure,” according to Danny Sarch, president of Leitner Sarch Consultants. Padalka also suggests that clients should have their advisor’s cell phone number to be in contact.
Don’t forget to check out last week’s top RIA compliance news articles on the SEC investor alert related to wrap fee accounts and the DOL fiduciary rule. 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.