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 broker protocol and the potential Securities and Exchange Commission (“SEC”) fiduciary rule. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of December 8, 2017:
- Three Big Effects of the Shifting Broker Protocol (Author- Joe Duran, InvestmentNews)
Joe Duran describes the broker protocol as “the mutual agreement that lays the ground rules for advisers to leave their existing brokerage firm and take specified client data with them.” Morgan Stanley and UBS have recently departed the protocol and Duran predicts that other large firms will join these large two in leaving the protocol, creating a domino effect. However, Duran argues, “departing from the protocol might make moving more cumbersome for advisers and clients, but technology keeps reducing switching costs and making it easier than ever to be independent,” and that ultimately “the consumer will continue to win.”
- Aguilar, TD’s Schweiss Discuss How an SEC Fiduciary Rule Could Work (Author- Melanie Waddell, ThinkAdvisor)
Before the Department of Labor (“DOL”) fiduciary rule can move forward, Waddell reports that the DOL and the SEC will need a “full commission” of five commissioners first. A former SEC Commissioner, Luis Aguilar, stressed the importance of the two agencies working together to create such a commission, and the rule itself. Though only some parts of the DOL fiduciary rule are currently in effect during this now extended transition period, the DOL stands ready to enforce active portions. Aguilar also predicts that no proposal from either agency will emerge in 2018, stating that the issue is much too complicated. He says, “I don’t think this `fiduciary` issue will be dealt with until there are five commissioners.”
- FINRA May Make It Harder for Brokers to Erase Past Indiscretions (Author- Ann Marsh, FInancialPlanning.com)
FINRA’s expungement process is undergoing some changes, which could possibly take effect in 2018. Marsh writes, “The proposed changes include a provision that would give brokers just one year to request removal of a disciplinary item from their online records. Current FINRA rules allow brokers to remove years’ worth of disciplinary items, in some instances.” Consumer advocates have long criticized FINRA’s BrokerCheck system, as brokers are able to “eliminate evidence of past indiscretions.” On the contrary, FINRA claims that expungements are the exception, rather than the rule. FINRA is requesting feedback on this issue via a short questionnaire.
- SIFMA Sees SEC Fiduciary Rule Proposal Within 18 Months (Author- Bernice Napach, ThinkAdvisor)
“Securities Industry and Financial Markets Association (‘SIFMA’) officials are optimistic the SEC will develop its own fiduciary rule proposal during the 18 months that full implementation of the Labor Department’s existing rule has been delayed,” states Napach. SIMFA’s CEO Ken Bentsen, is optimistic that the DOL and SEC can come together and compose a cohesive standard. Even so, lawsuits are expected over government “overreach”. Either way, Bentsen is seeking closure on the issue. He said, “Whether we prevail in our case — which we hope we do — or not, at the end of the day the course of action is the same, where SEC is to take lead and develop a best interest standard.”
- For Brokers, GOP Tax Plan Could Bring Upheaval and Job Switching (Author – Robert Schmidt, Bloomberg)
In regards to the proposed tax plan, Schmidt writes, “some brokerage firms are concerned that the tax overhaul could lead to upheaval, pushing their employees to set up their own shops or switch firms to lower their tax bill.” Depending on whether a firm is a partnership, C-Corporation, S-Corporation, or Pass-Through Entity, the fine print of the ‘American Tax Cuts and Jobs Act’ could impact each of those entities differently. Because of the taxation differences between large firms and their employees, some argue that individuals may be more likely to want to be considered contractors, or just to quit outright and start their own firms. Currently, the only thing certain is uncertainty.
Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, cybersecurity, and using software to reduce regulatory risk. Be sure to check back next Friday for next week’s top articles!