Top RIA Compliance News Articles for the Week of January 25, 2019

With the government shutdown coming to an end, the Securities and Exchange Commission (“SEC”) has returned to normal staffing levels and operations. Moving forward, SEC Chairman Jay Clayton said in a statement “the agency’s nearly 4,500 employees are now returning to their posts in Washington headquarters as well as the 11 regional offices, and that leaders of the agency’s divisions, in consultation with other staff members, ‘are continuing to assess how to most effectively transition to normal operations’. As the SEC employees continue to work through the requests and filings received during the shutdown, “we expect to address matters in the order in which they were received,” according to the Division of Investment Management.

2. Data breaches bring in big business for regtech (Author – Sean Allocca, FinancialPlanning)

For both RIA firms and the SEC, cybersecurity is a key regulatory compliance focus area for 2019 with vendor due diligence at the helm. Earlier this week, we at RIA in a Box introduced our Vendor Due Diligence tool at the T3 conference. This tool “opens up a digital connection between RIA firms and vendors to share due diligence documentation. Vendors can manage which RIA firms have access and share updated version” and will strive to make the audit process even easier. Morningstar, Orion, and Riskalyze have already signed on as initial industry partners. 

3. RIA firm sales could hinge on succession planning, study finds (Author – InvestmentNews)

Even in the midst of a seller’s market, it is important to take every step to ensure success. After the completion of surveying 162 registered investment advisory firms, Franklin Templeton Investments found that when selling their business, RIAs will most likely get less than what they are asking if a succession plan has not been put in place. The report states, “By underestimating the amount of time and the expertise required to prepare for a transition, whether internal or external, many RIA leaders are at risk of suboptimal outcomes for their firm as well as for the future of their clients and employees.”

4. RIAs: How to build a cybersecurity backbone before the SEC calls (Author- Wes Stillman, FinancialPlanning)

According to a recent post by Wes Stillman, “cybersecurity is a serious game and independent registered investment advisors are up against some of the best criminals out there, simply because of the nature of this business.” Because of this, making cybersecurity a top priority starts with building a strong team to build a defense. According to Wes Stillman, President of Rightsize Solutions, “The team roster needs the following three key players: a lawyer who is also a compliance expert, an IT management expert and a designated C-level executive responsible for cybersecurity oversight. These individuals are responsible for developing and implementing a workable cybersecurity policy.”

5. Regulators renew focus on best execution (Author- Blaine Aikin, InvestmentNews)

According to a recent post from Blaine Aikin, “when an investment adviser serves as an asset manager and has the responsibility to select broker-dealers and execute client trades, the adviser assumes a fiduciary obligation to seek best execution.” With the SEC and Financial Industry Regulatory Authority Inc. (“FINRA”) cracking down on best execution practices this year, firms need to be more diligent than ever when serving as an asset manager. In July, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) released a best execution risk alert stating “the duty of best-execution requires an adviser ‘to execute transactions for clients in such a manner that the client’s total costs or proceeds in each transaction are the most favorable under the circumstances.”

Don’t forget to check out last week’s top RIA compliance news articles on compliance issues when utilizing TAMPs, cybersecurity, and Nevada’s proposed fiduciary rule. Be sure to check back next Friday for next week’s top articles!