Top RIA Compliance News Articles for the Week of May 7, 2016

1. Figuring Out Fiduciary; Now Comes the Hard Part (Author- Liz Skinner, InvestmentNews)

Continuing to elaborate on the subject of the Department of Labor’s (DOL) fiduciary rule, this in-depth article goes into detail of what to expect and prepare for before next April when the rule begins to take effect. While Liz Skinner notes that “the final rule contained several important concessions to the advice industry,” John Anderson of the SEI Advisor Network, notes that “this is going to be a bigger change than the industry expects.” In particular, Skinner writes that, “independent broker-dealers, who currently operate under a less stringent standard that only requires investment advice to be ‘suitable” face the greatest disruption.” Anderson goes on to state that the DOL fiduciary rule, “is a huge win for RIAs.” While RIA firms “will have small operational changes to make,” Anderson believes that the end result of this rule is that many brokers and hybrids will look to become fee-only RIA firms. Skinner also writes that the compliance costs “could be a challenge for small RIAs” and may ultimately result in increased consolidation. This last point on consolidation conflicts a bit with Ron A. Rhoades who recently made the case that in his DOL rule analysis that the number of small RIA firms will continue to grow in the coming years. We tend to side with Rhoades and too believe the number of RIA firms is likely to continue to grow for many years. Overall, this is a terrific piece and worthy of the long read.

2. Ransomware, Account Hijacking and Other Cyber Threats to Watch (Author- Danielle Andrus, ThinkAdvisor)

Cyberattacks continue to be increasingly common, which is why it is important to take proper precautions when it comes to cybersecurity. Danielle Andrus reports in this article that “in addition to the familiar cyberattacks, ransomware and account takeover are increasingly common.” While cybercriminals may sometimes not always understand what information they are actually stealing, they know if they hold it hostage they can often sell it for a handsome profit. Furthermore, according to Kevin Witt, chief technology officer of Kestra Financial, “Bitcoin makes it very easy to collect ransoms anonymously.” Andrus goes to write that to help combat this risk “firms that have an extra dollar for their cybersecurity budget should spend it on backing up any information or system they can’t do business without.” Check out this article to learn more about this emerging RIA cybersecurity risk.

3. DOL Rule Won’t Disrupt Business, Say Fiduciary Advocates (Author- Dan Jamieson, Financial Advisor)

While many recent articles about the DOL fiduciary rule elaborate on the drastic changes that are to come to the financial advisor industry, this article presents the other side of the case. Dan Jamieson expands upon the topic that advisors should not see a major difference or disruption in their business as a result of the DOL fiduciary rule. Advisors’ lives may change somewhat from the rule, but not to the extent some people are making it out to be. The number one thing advisors should do as a result of this rule is to document everything. Patricia Houlihan, chief executive of Houlihan Financial Resource Group, notes that for RIA firms, “your life will `change` somewhat from this, but not to the extent I’m hearing from a lot of people. Houlihan notes that complying with this rule may result in increased documentation in regards to rollover recommendations, but this shouldn’t present a major challenge for RIA firms already operating under a fiduciary standard. Be sure to check out this piece for more thoughts from other members of the Committee for the Fiduciary Standard.

4. Interesting Angles on the DOL’s Fiduciary Rule #3 (Author- Fred Reish, FredReish.com)

Fred Reish, one of our top 5 DOL fiduciary rule experts that every RIA firm should follow, continues to release a series of blog posts on the “interesting angles” of the DOL fiduciary rule. In his third observation, Reish discusses the Best Interest Contract Exemption (BICE) and its effect on payments to managers and supervisors. He refers directly to a paragraph from the rule about the best interest standard stating, “the new rules will impact almost every aspect of the sales of investments and insurance products to plans…and especially to IRAs.” To read more, be sure to check out this recent post and others by Reish.

5. Fiduciary Roll Out: DOL to Extend a Hand (Author- Kenneth Corbin, Financial Planning)

Kenneth Corbin writes that Timothy Hauser, a deputy assistant secretary at the DOL, and of the key players behind the recent DOL fiduciary rule is “hoping to serve as a resource for affected firms and to work with them in a collaborative spirit as they implement the new rules.” Hauser states that “our primary efforts are not going to be about finding people to sue, it’s going to be about helping people to comply.” In particular, Hauser stresses that he’d like to work with firms to ensure the proper advice is given to design the proper systems upfront to sufficient comply with new requirements. Thus, it seems that firms should anticipate additional guidance and clarifications to come from the DOL in the coming months.

Be sure to check out last week’s top RIA compliance news articles and check back next Friday for next week’s top articles!