Top RIA Compliance News Articles for the Week of November 17, 2017

1. Surprise! The SEC is Here! Are you prepared? (Author- Brian Hourihan, WealthManagement)

Brian Hourihan writes, “U.S. Securities and Exchange Commission examiners in Boston, Mass. have been showing up at registered investment advisors’ offices unannounced to conduct ‘surprise’ examinations.” While many states have utilized surprise examinations as part of the routine examination program for quite some time, this is a newer development at the federal level. In order to be properly prepared for such an audit, Hourihan recommends that RIA firms consider conducting a mock audit performed by a third party to better assess the firm’s audit readiness. In addition, among other items, Hourihan recommends that RIA firms “review any prior SEC communications, including any prior SEC exam deficiency letters.”

2. ‘Affiliation Arbitrage’ Is a Bad Reason to Go RIA (Author- Rich Whitworth, InvestmentNews)

 Whitworth takes notice of the explosion of independent RIAs here. He notes some who enter into the industry are sometimes financially unprepared to do so. Three main points Whitworth emphasizes to consider when starting an RIA are compliance, affordability, and opportunity cost. Whitworth argues that compliance it time-consuming and requires extensive knowledge. Affording new technology to keep your new RIA ahead can also be a tripping point, especially when it comes to keeping client data safe in the current environment. Opportunity cost is more abstract. What are you sacrificing in order to run your own business? While Whitworth may be correct that affiliation arbitrage alone may not be enough of a reason to go independent, it’s also very important to remember that there are presently over 20,000 RIA firms managing less than $100 million in regulatory assets under management and that most RIA firms do not hire a full time chief compliance officer until they reach over $500 million in AUM.

3. Raymond James Defends Broker Protocol Amid Doubts About Its Future (Author- Andrew Welsch, On Wall Street)

Though Morgan Stanley has recently abandoned Broker Protocol, Raymond James remains committed. Most in the industry believe that the Broker Protocol is likely to fall apart with Morgan Stanley’s departure,. but Raymond James staff believes the Protocol is a part of basic good customer service and fiduciary duty. “The firm’s brokerage force hit a record 7,346 at the end of the third quarter, Raymond James reported recently. Many of the firm’s new hires have cited what they see as a broker-friendly culture as a primary reason for making their career change,” says Welsch. Raymond James’ CEO confirms that this policy, for them, won’t be changing any time soon.

4. SEC to Target More Individual Advisers in 2018, Experts Say (Author- Ryan Neal, InvestmentNews)

The SEC has lately ramped up its efforts to look out for retail investors. According to Ryan Neal, “advisers should be extra careful in 2018, since the SEC’s new leadership plans on taking a closer look next year at individual practitioners who serve retail investors, according to some legal and compliance experts who viewed the agency’s fiscal year 2017 enforcement results and priorities.” The recently released annual SEC enforcement report noted the “SEC pursued 82 standalone cases against investment advisers and firms, down from 98 the previous fiscal year.”

5. SEC Exam Priorities Said to Focus on Cybersecurity, Seniors in 2018 (Author – Ed Silverstein, ThinkAdvisor

Ed Silverstein writes, “Investments involving seniors and cybersecurity compliance are among the concerns expected to make the 2018 examination priority list now being developed by the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE), according to industry experts familiar with the process.” In general, many do not expect the 2018 examination priority list, which is expected to be released in January of 2018, to vary sharply from the SEC’s 2017 RIA examination priorities which also included a focus on “never before examined investment advisers” and cybersecurity. 

Don’t forget to check out last week’s top RIA compliance news articles on the SEC enforcement cases, the Department of Labor (“DOL”) fiduciary rule, and the steps to take when starting an RIA firm. Be sure to check back next Friday for next week’s top articles!