Top RIA Compliance News Articles for the Week of October 5, 2018

1. Higher Number of RIAs Run Afoul of State Regulators (Author- Diana Britton, WealthManagement.com)

According to the North American Securities Administration Association (“NASAA”), in 2017 “RIAs had more bad actors than broker/dealers.” Last year was the first year “in which enforcement actions against RIAs and their representatives significantly outnumbered those against b/ds and their reps.” According to the article by Diana Britton, “overall, NASAA member reported 2,105 enforcement actions in 2017, up slightly from 2,017 in 2016. States returned $486 million in restitution to investors, up from $231 million in the prior year, a reflection, prehaps, of the decline in actions against b/ds, which tend to be larger firms.”

2. SEC Hiring Freeze Will Leave Just One Examiner Per 20 RIAs By 2019 (Author – Tracey Longo, Financial Advisor Magazine)

According to a recent article by Tracey Longo, “Explosive growth in the number of registered investment advisors and the assets they manage may be manna for the industry. But effectively overseeing the industry presents the Securities and Exchange Commission with one of its leading challenges, according to a report the SEC’s Office of Inspector General sent to SEC Chairman Jay Clayton.” In addition to a stagnant budget and a smaller staff, they also face management and performance challenges. “Given the current levels of RIA growth, Office of Compliance Inspections and Examinations (“OCIE”) ‘estimates there will be approximately 20 investment advisers per staff members.'” To help cope with existing challenges, “the SEC wants Congress to approve the addition of 24 OCIE positions in FY 2019 — the largest increase for any division or office.”

3. New Jersey could be first in fiduciary ‘blue wave’ with pending proposal (Author- Mark Schoeff Jr., InvestmentNews)

As reported by Mark Schoeff, “Next Monday, the New Jersey Bureau of Securities is expected to release for public comment a proposed rule that would require all financial advisers in the state to put their clients’ interests ahead of their own when making investment recommendations.” The article continues to say, “This statewide fiduciary duty could very well conflict with the final advice rule the Securities and Exchange Commission is expected to promulgate later this year or in early 2019. With the SEC reviewing thousands of comments about its proposal, the advice reform issue has been relatively quiet for a few weeks. That is set to change.” New Jersey would be the first to release a proposed “fiduciary rule” of this nature, but other states are sure to follow. Stay tuned. 

4. SEC Releases New Strategic Plan (Author- Melanie Waddell, ThinkAdvisor)

As reported by Melanie Waddell, “The Securities and Exchange Commission released a new strategic plan Thursday for fiscal years 2018 through 2022 that includes bringing clarity to the standards of conduct governing investment professionals, modernizing investor disclosures and reviewing outdated rules, as well as examining regulated firms’ cyber and other system and infrastructure risks.” The three-pronged approach by securities regulators “sets out goals the agency plans to implement concerning investors, innovation and performance.” To read more about the plan, click here.

5. Financial planning could help advisers retain client assets through a bear market (Author – Ryan W. Neal, InvestmentNews)

With a dip in the market this week, some are concerned it could turn into a downturn. As reported by Ryan W. Neal, a new Cerulli Associates report notes, “financial planning taps into deeply emotional and difficult financial decisions involving children, spouses, careers and caring for aging parents. Advisers who can skillfully navigate these conversations can build deeper relationships than an adviser focused entirely on collecting assets and beating the market.” According to Marina Shtyrkov, a Cerulli research analyst, “It all boils down to trust. The financial planning process is more likely to breed a stronger client relationship. From that comes trust and loyalty and a sense of security.”

Don’t forget to check out last week’s top RIA compliance news articles on more new RIA firms being started, cybersecurity, and increased SEC examination focus around advisor rollover fees. Be sure to check back next Friday for next week’s top articles!