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 Department of Labor (“DOL”) fiduciary rule, the release of FINRA’s 2018 budget, and the 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 January 12, 2018:
- Interesting Angles on the DOL’s Fiduciary Rule #77 (Author- Fred Reish, FredReish.com)
Reish’s 77th article focuses on misconceptions regarding the DOL rule. Reish points out that though some of the rule has applied for 6 months already, its requirements remain vague to some in the industry. Specifically, Reish highlights, “some people are saying that the best interest standard means that an advisor must recommend the best possible investment. That is incorrect.” Reish continues by translating a portion of the DOL rule into layman’s terms, essentially stating that a sensible approach is required when developing a recommendation. The misconception is that some take this to mean that the best investment should be proffered. Reish states that this is false, and assumes, “people are confusing the best interest standard with ‘best practice.'”
- Delay in Fiduciary Rule Does Not Take Any Wealth Managers Off the Hook (Author- Danny Sarch, InvestmentNews)
Sarch begins by contrasting the DOL rule’s supporters and detractors, and the treatment of retirement vs. non-retirement accounts. He worries about discord between brokers and RIAs, claiming that each needs to realize they are there for the client, and need to disclose fees and commissions. In particular, he notes, “no leader in the brokerage industry would ever use an attorney or accountant whose work was only required to be ‘suitable,'” and states, “some of the least ethical practitioners are still within your own firms. Get rid of them.” This piece, while perhaps a bit controversial, is a worthwhile read.
- FINRA’s Budget, Released for First Time, Shows Revenue Problems (Author- Melanie Waddell, ThinkAdvisor)
Though FINRA is facing budget challenges, they state they will not be increasing member fees, Waddell reports. She writes, “FINRA’s budget states that assets under management by member firms have increased, the number of registered representatives has remained largely constant and innovations in fintech and other areas present new challenges.” In addition, “FINRA will hold senior officer salaries flat in 2018 as well, as it has for the last two years.” This is the first time FINRA has released its annual budget to the public and an interesting read.
- Morgan Stanley Reports a Loss of Advisers After Exiting the Protocol for Broker Recruiting (Author- Bruce Kelly, InvestmentNews)
In a somewhat expected development with the recent exit from the broker protocol, a number of Morgan Stanley advisors have recently left the firm. “Morgan Stanley said at the end of October that it was leaving an industry agreement known as the protocol for broker recruiting, making it more difficult for advisers to leave the firm with their clients because they faced the potential of a lawsuit,” explains Kelly. Morgan Stanley has “declined to comment” on the matter. Though advisors have departed, Morgan Stanley revenue is up due to record fees and the transition of clients to “fee-based accounts.”
- FINRA Unveils Simplified Licensing Exam (Author – Dan Jamieson, FInancial Advisor Magazine)
“The entry-level SIE `securities industry essentials` exam is part of a major overhaul of the licensing system, which turns the current licensing regime into a two-tier examination program,” Jamieson says. The new exam scheduled to be released in the fall of this year will cover basic industry mechanics, such as regulation, trading, and risk. The new exam will have only 75 questions. Jamieson also notes that, “those taking the SIE exam will not need to be associated with a broker-dealer. That change is designed to bring more new entrants into the industry.”
Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, cryptocurrency dangers, and a request to the SEC to define the word “advisor”. 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.