Top RIA Compliance News Articles for the Week of March 9, 2018

1. Court of Appeals Vacates DOL Fiduciary Rule (Author- Diana Britton, WealthManagement.com)

This week’s top RIA compliance headline reads: “The U.S. Court of Appeals for the Fifth Circuit has struck down the Department of Labor’s fiduciary rule, agreeing with the plaintiffs that the department overstepped its statutory boundaries, according to documents filed Thursday,” Britton announces. Following an opposite verdict in Texas, nine plaintiffs appealed the decision, and have won. They argued that the decision provides affordable financial advice to investors. The court came to the decision by aligning its thinking with the plaintiffs, who cited inconsistency and overstepping as two reasons the rule should be struck down. This, of course, creates precedent for future rulings. Supporters of the rule argue that that this ruling is a bad idea and is also a “slap in the face” to the staff who worked long and hard to create the rule. What’s next in regards for the DOL fiduciary rule is unclear but this could ultimately be determined by the U.S. Supreme Court.

2. SEC Investment Management Heads Talk Form ADV, Custody, Fiduciary Rule (Author- Melanie Waddell, ThinkAdvisor)

If your RIA firm’s fiscal year ends December 31, the annual Form ADV amendment must be filed by March 31. The Form ADV has recently been changed, with the effects previously becoming effective on October 1, 2017. SEC staff are looking forward to collecting “more robust data”. They plan to particularly study the Form ADV Part 1, assessing and analyzing risks posed by firms. “Speaking at the Investment Adviser Association’s compliance conference in Washington, `Paul Cellupica, deputy director of the Securities and Exchange Commission’s Division of Investment Management` Cellupica said that with the new changes to Forms ADV Part 1A, which took effect on Oct. 1 and require advisors to provide more information on their use of separately managed accounts, branch office operations and social media,” Waddell says.

3. IBDs Cool About Dropping IA Oversight (Author- Dan Jamieson, Financial Advisor Magazine)

While FINRA has proposed removing the broker-dealer requirement to oversee outside investment activity, some industry executives have concerns. Jamieson explains, “The proposed changes would require a rep to provide prior written notice of an outside IA, and the BD would be required to conduct a risk assessment of the advisory firm and either approve it, put conditions on it or disapprove it.” Some broker-dealer executives have concerns that broker-dealers may still be liable for outside independent RIA activity despite a potential rule change. On the other hand, some say that this may free the broker-dealer from potential liability. 

4. Advisors Find Increased Revenue, Happiness in Independence: Schwab (Author- Emily Zulz, ThinkAdvisor)

It turns out Mase and Puff Daddy may have been wrong all these years. Jokes aside, Emily Zulz reports, “More money, fewer problems? Most advisors say they have increased their revenue since going independent. They also say they’re happier, according to a new study from Charles Schwab.” Schwab refers to advisors who have switched over to independent advising as “sophomores”. Most of these sophomores come from “banks, brokerage firms, and broker-dealers”. Almost 3/4 of those surveyed said they’d increased their revenue since making the jump. Industry experts predict that this is the future of the business, not wirehouses. Some observe that this is because the bond between client and advisor is much stronger on an independent basis.

5. Senate Passes Act Encouraging Advisors To Report Fraud Against Seniors (Author – Tracey Longo, Financial Advisor Magazine)

This Wednesday, the Senate passed the “Senior Safe Act”. Essentially, it would protect industry whistleblowers who report bad acts against senior citizens. “The bill also encourages financial services firms to provide standardized training to front-line employees and producers to help identify and report instances of suspected abuse, which is an important piece of the legislation, according to the Financial Services Institute (FSI), an organization representing the independent broker-dealer industry,” Longo says. Regulators need all the help they can get, and with firms and advisors also keeping an eye out for abuse, things can only get better for seniors, who are most at risk for such happenings. According to MetLife, the monetary value attached to this is $2.9 billion. 

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the SEC SCSD Initiative, succession planning, and the SEC cryptocurrency focus.  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.