Each week, we are 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 potential Marketing Rule risk points for advisers, the alignment (or lack thereof) between the Securities and Exchange Commission (SEC) non-traded REIT regulations and that of the North American Securities Administrators Association (NASAA) and how advisers are tackling the process of self-correction for the Department of Labor’s (DOL) rollover ruling.
Here are our top investment adviser compliance articles for the week of September 30th, 2022:
1. 7 Advertising Don’ts Under New SEC Marketing Rule (Author — Thomas D. Giachetti, Think Advisor)
With the new SEC Marketing Rule deadline fast approaching, advisers must be on guard or risk potential penalties for the upcoming SEC sweep examinations. This article lays out critical areas for advisers to be cautious of, including how the SEC will define an advertisement moving forward.
Following the rule passing in December 2020 and the effective date in May 2021, advisers have been on notice to comply with additional or updated requirements. This includes the inclusion of Item 5.L. in your Form ADV Part 1 and the disclosures necessary for any testimonials or endorsements.
2. SEC urged to revise strategic plan to address RIA arbitration, threats to senior investors (Author — Mark Schoeff Jr., Investment News)
The comment period for the SEC’s 2022-2026 strategic plan has showcased the potential misalignment between the regulator and the industry at large. Significantly, commenters noted three key areas in which they felt the draft agenda was lacking:
- Contract clauses related to pre-dispute arbitration.
- Elderly investors.
- “Rulemaking by enforcement.”
Additionally, “The Chamber `of Commerce` wants the agency to elevate “capital formation” in part by making it easier for ordinary investors to buy private shares.” The drafted plan was released in August, with any comments expected by Sept. 29.
3. Will NASAA’s REIT Plan Sync With Reg BI? — SEC Roundup (Authors — Nick Morgan and Tom Zaccaro, Think Advisor)
During a recent airing of the SEC Roundup, Nick Morgan, Tom Zaccaro and Anya Coverman discussed both the SEC and NASAA regulation of non-traded REITs. While previously the regulators’ approaches varied, NASAA has recently released a proposal which would align their regulation more closely with the SEC’s. The proposed updates were open for comment until Sept. 12. Watch the full video to hear more about the panelists’ perspectives on this updated NASAA regulation.
4. Firms Already ‘Self-Correcting’ DOL Rollover Rule Violations (Author — Tracey Longo, Financial Advisor)
Following the compliance date back in February of this year, advisers are doing what they can to “self-correct” any violations of the new DOL rollover rule. According to Fred Reish, multiple clients have approached him, seeking advice to course correct the violations which have occurred on the firm or adviser level. However, while the DOL has promised a new standard before 2023, the issue is currently a lack of understanding of what self-correction should entail.
“There is real ambiguity regarding what the DOL thinks a self-correction should look like. What will DOL say when they start doing investigations?” Campbell asked. Despite these concerns, many are optimistic that should the firm violate the current rule, if they make corrective action and self-report to the DOL, the regulatory authority will look favorably on their proactive approach and lean away from harsh action.
5. RIA Leaders 2022: Financial planning clients are undefined, undercounted and underserved (Author — Tobias Salinger, FinancialPlanning)
How does the SEC define financial planning? According to an Oct. 1987 memo, it “typically involves providing various services, principally advisory in nature.” Given the broad scope of this classification, it should come as no surprise that the industry struggles to clearly define and differentiate between those who receive financial planning services and those who do not. “Form ADV could conceivably differentiate between financial planning-only clients and clients who receive financial planning along with other services,” DiTata said. “This is not necessarily likely to happen, so it remains up to the advisor to ensure that each client understands what services will be provided, including whether those services constitute ‘financial planning’ or not.”
And in fact, one of the major challenges in gaining an accurate count of said clients is the ambiguous nature of what should be received as part of a financial planning service. However, as a whole, it is clear that this group is, as Salinger put it, undercounted and underserved.
Don’t forget to check out last week’s top RIA compliance news articles that focus the SEC Marketing Rule, the NASAA’s enforcement report, and a new model rule from the state regulator, which allows advisers to keep their licenses for a period after leaving the industry, and the SEC’s warning to investors regarding performance claims.