Each Friday, 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 the Securities and Exchange Commission’s (SEC) budget request, the need for firms to prepare for SEC examinations, how the economy has affected RIA acquisitions, why some firms are looking to add a custodian in the next year and the expectations financial advisers have of the market.
Here are our top investment adviser compliance articles for the week of Apr. 14, 2023:
Latest SEC budget request emphasizes an enforcement agenda (Author – Dan Shaw, Financial Planning)
The Biden administration has requested a $2.4 billion budget for the SEC in the 2024 fiscal year, with $200 million earmarked for increased enforcement. The proposed funding would allow the SEC to hire 109 more enforcement officers, bringing the agency’s total to 1,434, an 8% increase from the current level. Some members of the securities industry are concerned the SEC’s rulemaking agenda may be too ambitious and distracting, preventing it from effectively holding bad actors accountable. SEC Chairman Gary Gensler has voiced support for the administration’s budget request.
Do a ‘Mock Audit’ now before SEC comes knocking: compliance pro (Author – Melanie Waddell, ThinkAdvisor)
The SEC plans to resume onsite exams of advisory firms, which may pose a challenge for firms with hybrid work models, according to a former SEC staff accountant and special investigator at FINRA. Firms should ensure most staff are in the office when the SEC is onsite and that at least one senior person from each department is present to answer questions. According to the article firms would be wise to evaluate their compliance program and conduct a mock audit prior to a visit from the SEC. Additionally, advisers should watch for the upcoming Risk Alert from the SEC on the new Marketing Rule and may want to keep a close watch on the cybersecurity and Form PF rule proposals. While a proposal for the 12b-1 fee-related rule could be released, other SEC priorities may take precedence.
Economic realities dampen pace of RIA acquisitions (Author – Jeff Benjamin, Investment News)
The rapid pace of consolidation in the RIA space has shown signs of slowing down, with Q1 2023 seeing a 7% drop in deals compared to the same period in 2022, according to data from DeVoe & Co. This decline follows a 19.7% year-over-year drop in the previous quarter. The slowdown could position 2023 as the first year in more than a decade not to set a new record for mergers and acquisitions in the RIA space. Despite the decline, DeVoe & Co’s CEO, David DeVoe, believes that this is not a drying up of deal activity but could be the start of a long-term slowdown in deals.
Should your RIA add a custodian? (Author – Gino DeRango)
Many RIAs are exploring adding a new custodian in the next year to diversify their business and avoid relying completely on one service provider. Multi-custodial advisers believe working with more than one custodian allows them to mitigate risks, offer clients more choice as a fiduciary and provide checks and balances. When choosing an additional custodian, RIAs should conduct thorough due diligence and look for a custodian with a relationship-based, non-competitive culture, an innovative technology platform, flexible investment solutions, integrated banking products and solutions, flexible and transparent pricing and comprehensive custody and clearing services. Adding a custodian that is more aligned with your values, mission and understanding of what is important to your business and your clients can provide greater support for your business.
Most advisers expect stock bull market in 2023: survey (Author – Michael S. Fischer, ThinkAdvisor)
According to a recent survey conducted by InspereX, slightly over half of survey participants believe that a prolonged bull market in equities will start in 2023. 48% of advisers indicated that equities will perform the best this year, whereas only 1% of advisers mentioned cryptocurrencies. The survey also found that 60% of advisers believe their clients are most worried about market volatility, while 33% cited inflation as their main concern.
Market volatility, inflation and shrinking margins were cited as the top barriers to success for advisers in 2023. To overcome these barriers, advisers are focusing on referrals, in-person and virtual networking, client appreciation events, email marketing and virtual education seminars.
Don’t forget to check out last week’s top RIA compliance news articles recapping on tips RIA firms can implement to increase their organic growth, the SEC’s new proposed cybersecurity rule and more.