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, regulatory exams for dual registrants, choosing office space when starting an RIA firm, and advisory fees. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of February 15th, 2019
1. Double trouble? SEC ups scrutiny of dual registrants (Author- Kenneth Corbin, FinancialPlanning)
Dual registrants already face complex regulatory guidelines and Kenneth Corbin writes that the Securities and Exchange Commission (“SEC”) will begin to monitor dually registered brokers and advisors more closely. Those dual registrants are subject to all requirements of the advisers act and in particular, the custody rule, makes the already-complex guidelines even harder for these firms. Although there has been a push for clarification on the Custody Rule, there is still a lot of gray area causing dual registrants to engage in activities that unknowingly would deem them to have custody. Furthermore, according to Corbin, “For dual registrants, SEC examiners will also expect firms to justify the determination to place clients in the advisory or brokerage wing of the practice, taking into consideration factors such as the investor’s objectives, the anticipated volume of trading activity, and the provision of other financial planning services.”
2. Advisory fees push commissions further into the background (Author- Jeff Benjamin, InvestmentNews)
Jeff Benjamin walks through a recent study done by Cerulli Associates. The research concludes that investors prefer paying fees based on assets under management as opposed to commission-based fees. Clients like the idea of both parties being paid more when investment portfolios increase and vice versa. In addition, Benjamin takes a look at a previous study done by Elizabeth De Pardo, a management consultant for TD Ameritrade Institutional. In that study, De Pardo looks at the percentage of clients under a pure-asset based pricing model and the percentage of advisory firms who include services other than asset management in those fees.
3. Pitfalls when breakways pick out their first independent office (Author – Pamela Stross, Financial Planning)
For financial advisors looking to find a new office space, factors other than the physical assets a space offers must be considered. Pamela Stross shares common missteps financial advisors often take when finding a new office space and offers 3 ways to avoid those in your transition plan which include loyalty or confidentiality breaches, location, and interior design. Stross states, “The care you take in establishing your new independent workspace offers an opportunity to set your new practice on the right path.”
4. How Financial Advisors Can Help Clients With Cybersecurity (Author- Matt Oechsli, Wealth Management)
While cybersecurity can be a challenging issue in the financial services sector, Matt Oeshli suggests that this can be an opportunity for financial advisors to provide an additional layer of value to their clients. Since many clients may may be quite ill prepared to prevent and identify cybersecurity issues, advisors can educate their clients on cybersecurity best practices. According to Matt Oeshli, “Not only will you reinforce your value as personal financial advisor to your clients and their families, you’ll further protect yourself from the automated advice platform, or so-called robo, movement.”
5. Regulators Bear Down on VA Sales Commissions (Author-Tracey Longo, Financial Advisor)
Securities attorneys at Eversheds Sutherland announced during a press conference on Thursday that both the SEC and FINRA will be paying close attention to variable annuities (“VA”) during their examinations. According to Tracey Longo, “The regulators are looking for product sales where pricing and commissions appear excessive and instances where advisors are doing costly swaps of clients’ existing contracts for new VAs that add little or no client benefit but generate new commissions and fees.” The SEC has published an investor alert on variable annuities urging investors to review a firm’s policy and judge if it is suitable for them.
Don’t forget to check out last week’s top RIA compliance news articles on cybersecurity, the SEC’s Regulation Best Interest Proposal (“Reg BI”), and RIA custody rules. 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..