Top RIA Compliance News Articles for the Week of November 1st, 2019

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 Securities and Exchange Commission’s (“SEC”) proposed changes to the advertising and solicitation rule, 2019 SEC enforcement actions, and proposed proxy rule changes. 

Here’s our top investment adviser compliance articles for the week of November 1st, 2019    

1.  SEC looks to update advisor advertising rule for digital age (Author – Kenneth Corbin, FinancialPlanning)

To modernize the advertising and solicitation rule, the SEC voted on Monday that it would move forward in making updates to the rule. Industry leaders including Karen Barr, President of the Investment Adviser Association (“IAA”), are in support of this decision stating that the current statute is a “badly outdated rule.” According to Kenneth Corbin, “The proposed changes to the advertising rule would broaden the definition of an advertisement to include messages promoting an advisor firm “disseminated by any means,” an expansion in scope that would apply broadly to the various channels advisors are using to reach prospective clients.” The proposal will be open for a 60-day comment period.

2. SEC Proposes Changes to Advertising and Solicitation Rules  (Author – Erick Berquist, Wealth Management)

Erick Berquist breaks down the components of the SEC’s proposed changes to the advertising and solicitation rules under the Investment Advisers Act of 1940. According to Berquist, “The first rule, which relates to advertisements and would replace a rule adopted in 1961 that has not substantively changed since, would ‘replace broadly drawn limitations with principles-based provisions,’ according to an SEC statement.” The SEC has also proposed to update the Advisers Act cash solicitation rule and has proposed related Form ADV amendment requirements related to the firm’s advertising practices.

         3. SEC, In Reversal, Proposed Allowing Testimonials in RIA Advertisements  (Author – Tracey Longo, Financial Advisor Magazine)

Of the rule amendments related to advertising proposed by the SEC, one major change is the use of testimonials and third-party ratings. The proposed amendments would allow investment advisors to use testimonials and third-party ratings in advertisements which is prohibited under current regulation. “The reforms we have proposed today are designed to address market developments and to improve the quality of information available to investors, enabling them to make more informed choices,” SEC Chairman states. Tracey Longo further breaks down the proposal and retail adviser protections.

          4. Third of SEC Enforcement Actions in FY ’19 Involved Advisors  (Author – Melanie Waddell, ThinkAdvisor)

The SEC’s Division of Enforcement released its annual report which revealed that 36% of enforcement actions in fiscal year 2019 involved advisory and investment companies. The number of standalone actions in 2019 were nearly 7% higher compared to 2018. Melanie Waddell writes, “The commission ‘brought a broad mix of enforcement actions that addressed a wide variety of misconduct across the spectrum of the securities markets,’ co-division chiefs Stephanie Avakian and Steven Peikin said in the report.” Actions involved insider trading, market manipulation, public finance, and more.

           5. SEC Approves Proposed Proxy Rule Changes (Author – Bernice Napach, ThinkAdvisor) 

The SEC has voted 3 to 2 to adopt proposed changes affecting proxy voting practices included in Section 14A-8 of the Securities Exchange Act of 1934 which raises the requirements of proxy voter submissions. Under the proposed changes, according to Bernice Napach, “A shareholder would have to own at least $2,000 worth of stock for three years to sponsor a first-time proxy proposal, up from one year currently. Alternatively a shareholder could submit a proposal if he or she or an institution like a pension fund owned $25,000 worth of stock for one year or $15,000 for two years.” Opponents of the proxy proposals such as SEC commissioner Robert Jackson argue that the new rules make it easier for executives to “to run companies that favor their interests.”