Top RIA Compliance News Articles for the Week of March 23, 2018

1. Kitces: Why We’re Entering a Golden Age for Solo Advisors (Author- Michael Kitces, FinancialPlanning.com)

Though some believe individual advisors may be struggling for survival, Michael Kitces disagrees. He states that this same prediction has been relevant for years now, but the evidence suggests the opposite of extinction. He points out that solo advisors of the best caliber make just as much money as “a $1 billion `AUM` advisory firm.” Kitces also argues that this is due to the falling costs of running a firm, citing the advent of technology including new “regtech” solutions such as RIA in a Box’s MyRIACompliance compliance software platform. Essentially, it is just easier to be an independent advisor today. Communication, custom planning, and even client relationships have improved, paving the way for more individual advisors. 

2. Interesting Angles on the DOL’s Fiduciary Rule #84 (Author- Fred Reish, FredReish.com)

This week we’ll take a look at Fred Reish’s view of the 5th Circuit Court ruling, which vacated the DOL fiduciary rule. He firstly notes that the change will not happen until early May, but warns that the appeals process could drag that out to about a year by way of a stay. Bottom line: things are even more confusing right now. This is all about “whether advisors are governed by the new fiduciary rule-the one the court vacated-or if the ‘old’ pre-June 9, 2017 rules apply. Unfortunately, when it comes to recommendations of plan distributions and rollovers, those two sets of rules are different in significant ways,” Reish laments. He states if the new rules are followed, the Best Interest Contract Exemption (“BICE”) would apply. If the old rules are employed, a chunk of advisors would not be considered fiduciaries, “and therefore won’t need an exemption”. 

3. Advisors Have a Big Fee Disclosure Problem: CFA Institute (Author- Michael Fischer, ThinkAdvisor)

Expectations often do not meet reality, and that indeed goes for investors and their financial advisors according to a new study. The CFA institute recently recorded a study with impactful findings. “Eighty-four percent of retail investors said full disclosure of fees was key to their trust in advisors, while only 48% said advisors delivered on this priority. Likewise, 80% of respondents said disclosure and management of conflicts of interest, and 78% said generating returns that outperformed a benchmark were their top expectations, but only 43% and 44%, respectively, were satisfied with advisors on these priorities,” Fischer reports. His article also lists ways advisors can improve these numbers in the areas of credibility and professionalism. For example, having a code of conduct, and using the clearest language possible.

4. CFP Board Expands Fiduciary Duty for Financial Advisors (Author- Mark Schoeff Jr., InvestmentNews)

The Certified Financial Planner Board of Standards Inc. (“CFPB”) has begun overhauling its conduct requirements, and this has started with a broadening fiduciary standard, requiring “best interest standards in all aspects of financial advice.” Simply put, all CFPs would need to conduct themselves according to their clients’ best interests. The process of changing the conduct standards has been two years in the making. The changes will go into effect in fall 2019. The SEC is expected to follow suit with “its own advice standard proposal this summer.”

5. Advisors In Suspense as DOL Contemplates Fighting for Its Rule (Author – Tracey Longo, Financial Advisor Magazine)

There is continued speculation on what the DOL will do after the recent 5th Circuit Court to repeal the fiduciary rule.. Most assume they will appeal, but there is the question of where the appeal will be heard: the 5th Circuit Court, or the Supreme Court? Longo’s sources state that though some are hopeful for its demise, it cannot be counted on. If the DOL does look to overturn, that could be a long process, and lead to the DOL simply starting all over again. Longo hypothesizes that the lack of action and presence of confusion at the federal level could lead states to begin crafting their own fiduciary rules. A few states, mostly in the northeast of the country, have already started doing so. The state regulations, ” require financial advisors to disclose conflicts of interest to clients or meet standards that require them to put clients’ best interests first.”

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, preparing for an SEC examination, the broker protocol, and the importance of a social media presence.  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.