Top RIA Compliance News Articles for the Week of April 13, 2018

1. SEC Rule: Brokers Can’t Pose as Advisors, May Become RIAs (Author- Tracey Longo, Financial Advisor Magazine)

Earlier this week, the SEC introduced new proposals on a new best interest standard for broker dealers. The proposals total almost 1000 pages. Longo writes that though the documents don’t necessarily define ‘best interest’, they do “require B-Ds to make clear to the investing public that their brokers are salespeople who do not offer continuing advice or account maintenance and are not trusted fiduciary advisors.” They will also need to avoid the words ‘advisor’ and ‘adviser’. Even so, with some of the DOL fiduciary rule preparations already in place, many broker-dealer firms have slowly moved into the advisor/fiduciary space, and aren’t necessarily looking to back-peddle now. 

2. Brokers Accept Proposed SEC Rule on Who Can Call Themselves An Adviser (Author- Mark Schoeff Jr., InvestmentNews)

Mark Schoeff Jr. writes that brokers have been surprisingly open to the SEC’s new advice rule proposals. They realize that clients can be easily confused regarding procedures and regulations. Some critics argue that the proposals don’t go far enough, and should have everyone acting as a fiduciary. They point out that investors assume that industry professionals already are fiduciaries and have their best interests at heart. Despite this, the line the SEC has drawn between brokers/registered representatives and advisers is being applauded by some. Schoeff relays, “Doug Flynn, the the co-founder of hybrid firm Flynn Zito Capital Management, agreed that preventing brokers from calling themselves advisers could help clear up investor confusion and improve perception of brokers.”

3. Advisors Greet SEC’s Best Interest Proposal with Skepticism (Author- David Lenok, WealthManagement.com)

“Wednesday afternoon, a five-person Securities and Exchange Commission panel voted four to one to move forward on a proposal package that would establish a best interest standard for broker/dealers and restrict brokers from using the titles “advisor” or “adviser,” as well as implement a new mandatory disclosure document, the Form CRS, summarizing investment advisors’ and brokers’ relationships with clients,” Lenok begins. Lenok notes some professionals don’t believe the package doesn’t go far enough, specifically on conflicts of interest. While enduring plenty of criticism, others are just happy the proposals are moving forward in any capacity.

4. SEC’s Broker Conduct Rules Lack Clarity, Industry Watchers Say (Author- Melanie Waddell, ThinkAdvisor)

According to William Galvin, Massachusetts Securities Regulator, “The SEC provided a confusing conduct standard that is sorely inadequate to protect retail investors. While the rules use terminology such as ‘fiduciary duty’ and ‘best interest,’ the substance of the rules fall far short.” Others expressed concern that the proposal also convolutes advisor titles, the term ‘fiduciary’ and Form CRS. Some believe that the biggest problem is that the proposal doesn’t define ‘best interest’. This will prevent proper implementation and enforcement, says Barbara Roper of the Consumer Federation of America. 

5.  No Succession Plan? Why Smaller Firms are at Risk (Author – Charles Paikert, FinancialPlanning.com)

“Firms that generate between $150,000 and $500,000 in annual revenue are most at risk if they don’t have an adequate succession solution in place, according to a new report from TD Ameritrade Institutional,” writes Charles Paikert. Obviously larger firms are more likely to have several people who can replace a lost principal, even if there is no ‘obvious successor’. To prevent a gaping hole in smaller firms, director of advisor business performance solutions for TD Ameritrade Institutional Vaness Oligino suggests acting on succession planning as soon as humanly possible, and prioritizing growth. She also says to be prepared for the process to take more than a year.

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the SEC’s potential three new standard of conduct recommendations, and the new SEC compliance risk alert regarding advisory fee billing issues.  Be sure to check back next Friday for next week’s top articles! 

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.