Top RIA Compliance News Articles for the Week of October 29, 2016

1. Hopes fade for RIA third-party exam rule by the SEC this year (Author- Mark Schoeff Jr., Investment News)

Mark Schoeff writes that, “hope is fading for the Securities and Exchange Commission (SEC) to act this year on a regulation that would authorize independent examinations of registered investment advisers.” The potential rule is “stalled” because the commission currently lacks two commissioners. Up until a few weeks ago, it appeared that there was some momentum behind introducing this new rule which SEC Chairwoman Mary Jo White has backed as a method to increase the frequency of SEC-registered RIA examinations. In particular, it’s rumored that the other SEC commissioners have concerns related to “costs and effectiveness” of the proposed third party audit rule.

2. 5 Guideposts for RIAs to Comply With SEC’s Change of Control Rules (Author-  Chris Stanley, ThinkAdvisor)

If an advisory firm in involved in a merger, sale, or other type of corporate restructuring, Chris Stanley writes that, “RIAs will inevitably need to navigate SEC ‘change of control’ rules and guidance.” there are new rules to follow by the SEC. Furthermore, in regards to client investment advisory contracts, Stanley notes there are two situations where an “assignment” can occur: 1) “when advisory contracts are transferred to another RIA or pledged as collateral,” or 2) the equity ownership structure of an RIA changes such that a ‘controlling block’ of the RIA’s outstanding voting securities changes hands.” The article describes five guideposts an RIA should be aware of which, mainly focusing on the definition of “control.”

3. Verification key to halting cyber scams (Author- Editorial, Investment News)

A few weeks ago, a broker from Wells Fargo Advisers was fined and suspended for transferring $350,000 to an imposter posing as a client. The company requires a protocol involving verbal confirmation to verify the client’s identity, but the exchange was completed through a series of e-mail exchanges. A survey, controlled by the SEC, found that more than half the brokerages were aware of imposters using stolen e-mail addresses. As RIA compliance consultants, we strongly recommend that all investment advisory firms have policies and procedures in place to verbally confirm all wire requests.

4. The First Set of DOL FAQs, Explained (Author- Diana Britton and David H. Lenok, Wealth Management)

This past week, the Department of Labor (DOL) released the first of three frequently asked question documents regarding its forthcoming fiduciary rule. As summarized by Diana Britton and David Lenok, this first list of 34 FAQs focus on key dates, the best interest contract exemption (BICE), level fee fiduciaries, annuities, disclosures, grandfathering, PTE 84-24, and transition. This first set of FAQs helps clarify the use of the “Level Fee Exemption” and we have highlighted the key takeaways for RIA firms in this related blog post. In particular, the FAQs also clarify that a “Level Fee” advisor can exercise discretionary authority in an IRA account following a roll over and that the “Level Fee Exemption” can be used when recommending that a client transition from a commission to fee-based account as long as the transition is in the client’s best interest.

5. Technology can help advisers ensure they are giving ‘best’ advice to meet DOL fiduciary rule (Author-  Ed Gjertsen II, Investment News)

Beginning in April 2017, the new DOL Fiduciary Rule requires advisers  to act as fiduciaries when advising retirement assets. To help RIA firms and advisers comply with the new requirements, many technology companies have scrambled to release new or revised software to help ensure advisers are giving proper, documented advice to their clients. However, we caution advisors to be cautious when considering new technology purchases. In particular, we believe that advisors should generally be able to utilize existing software solutions with a particular emphasis on their customer relationship management (CRM) solution. However, for firms that have been hesitant to previously adopt technology, this new rule may provide the impetus to begin taking a closer look at necessary technology.

Don’t forget to check out last week’s top RIA compliance news articles on new required social media disclosures and more independent broker dealer (IBD) representatives starting their own RIA firm. Be sure to check back next Friday for next week’s top articles!