Top RIA Compliance News Articles for the Week of October 7, 2017

1. SEC’s New Form ADV Demands Will Trip Up Unprepared RIAs (Author- Ann Marsh, FinancialPlanning.com)

The Form ADV changes, which went into effect just a few weeks ago, may have transformed a regular task into a daunting one. Marsh quotes GJ King, president of RIA in a Box, who stated, “This is going to put a pretty big burden on firms. For midsized firms, they need to revisit their technology infrastructure. For bigger firms, this is a significant investment. As the SEC continues to expand its data capabilities, this gives them more data to be able to sort, analyze, rank and organize.” The SEC will require new detail on items ranging from social media to how client funds are invested. In particular, the changes require RIA firms to disclose much greater detail as it relates to separately managed accounts.

2. Advisors Paying More for Compliance (Author- Diana Britton, WealthManagement.com)

Diane Britton notes that some financial professionals assumed that their lives would be made easier under a business-friendly presidential administration, but that they have been disappointed. Some regulations have certainly stagnated in Congress or the Senate, but some, such as the form ADV changes mentioned above continue to be implemented. According to Diana Britton, “In the last year, firms have increased their compliance budgets by 9 percent on average”. The DOL fiduciary rule is a particular pain point cited given the continued changes and uncertainty. Britton cites in her article that one advisor estimates that he spends about 40% of his time on compliance alone. 

3. SEC’s New Form ADV Expands Scrutiny on Registered Advisers (Author- Javier Simon, PlanAdviser)

As it relates to the recent Form ADV changes, Javier Simon writes that such changes may help the SEC to more easily prioritize certain firms for regulatory examinations. GJ King, president of RIA in a Box, offers his angle, “As it relates to RIAs, social media is like any other form of advertising in the SEC’s eyes. We can assume that over time, the SEC will have better capabilities to programmatically scan social media postings for particular keywords or problematic posts. They’re going to be scanning for phrases like ‘guarantee’ or ‘beat the market,’ anything making a promise or testimonial which may be prohibited as it relates to RIA advertising.” 

4. Preston Rutledge, Senior Aide on Senate Finance Committee, Could Be Filling Phyllis Borzi’s Old Post at DOL (Author – Mark Schoeff, Jr., InvestmentNews)

The next point person on the DOL Fiduciary rule could come from the Senate Finance Committee, nominated by Donald Trump. Mark Schoeff writes that Preston Rutledge is slated to take over the position of DOL assistant secretary for the Employee Benefits Security Administration. He would be replacing the so-called “mother of the DOL rule”, Phyllis Borzi. Speculation on how the new secretary will approach the rule is flying, especially since Trump ordered a review of the regulation. Rutledge is a finance veteran, having worked on the Secure Annuities Employee Retirement Act, and was a tax law specialist at the IRS. Schoeff writes, “The DOL is seeking a delay from Jan. 1, 2018, to July 1, 2019, for the implementation of the remaining parts of the fiduciary rule. Interest groups are eager to have a new EBSA director, as the DOL’s review continues.”

5. Interesting Angles on the DOL’s Fiduciary Rule #65 (Author- Fred Reish, FredReish.com)
   

Reish writes about the “unexpected consequences of Fiduciary Rule”, in this, his 65th article on the DOL rule. This article focuses on the undue impact placed on investment advice to IRAs. Reish uses the example of transaction fee vs. no transaction fee mutual funds. “When plan or IRA assets are held by a custodian, an advisor often has the ability to recommend either transaction-fee (TF) mutual funds or no-transaction fee (NTF) mutual funds. The recommendation of either TF or NTF funds is a fiduciary act for plan assets, and it will be a best interest act for IRA assets—if the advisor or his or her firm receives any payments beyond a stated advisory fee that is level. (In effect, the payments from the custodian “unlevelize” the advisory fee.)”. Reish urges advisors to review all forms of compensation.

Don’t forget to check out last week’s top RIA compliance news articles on uniform SEC fiduciary rule, the DOL fiduciary rule, and compliant texting. Be sure to check back next Friday for next week’s top articles!