Top RIA Compliance News Articles for the Week of April 16, 2016

1. SEC Warns More Cyber Enforcement Actions Coming (Author- Kenneth Corbin, Financial Planning)

One of the Securities and Exchange Commission’s (SEC) top priorities continues to be ensuring better cybersecurity by making sure advisors are protecting clients’ private information from cyber threats. As Kenneth Corbin notes, the SEC discussed during its recent webcast this week covering a wide variety of investment adviser, investment company, and private fund compliance topics, that firms should expect more information security-related enforcement actions to take place. The SEC also discussed that it continues to shift examiner resources from its broker dealer unit to its RIA examination unit. Despite this continued shift of SEC resources, the idea of third party RIA compliance audits continues to remain a possibility. However, there are still many questions to work out in regard to independent RIA examinations including most importantly the total scope of these exams as the scope will likely be a key determinate of the ultimate cost to RIA firms. 

2. SEC to Launch 12b-1 Fee Share Class Initiative (Author- Melanie Waddell, ThinkAdvisor)

Also announced during this week’s recent SEC webcast is that the agency is planning to launch a “Share Class Initiative” by the end of the year. As Melanie Waddell reports, the goal is to “examine advisors’ commissions in connection with recommending share classes that charge investors 12b-1 fees.” The SEC also noted that it remains focused on RIA business continuity plans and continuing to get a better understanding of online investment platforms commonly referred to as robo-advisors. Lastly, Waddell reports that the SEC continued to emphasize that RIA firms going through a traditional risk-based SEC audit should not assume that something is wrong with their firm. 

3. Fiduciary for All: More Regulation Coming, Says Sheryl Garrett (Author- Scott Wenger, Financial Planning)

In January 2015, President Obama directly quoted industry guru Sheryl Garrett when stating, “The role of a financial advisor is one of the most important jobs. But there is a segment of the industry today that operates like the gun slingers of the Wild West.” President Obama goes on to state that he could not have said it better himself. Now, fifteen months later, with the final Department of Labor (DOL) fiduciary rule released, Scott Wenger seeks out Garrett’s take on the final rule. Broadly, Garrett concedes that broad changes cannot happen overnight and that “it’ll take longer to establish a “fiduciary culture”. However, she does speak quite favorably in regards to the rule moving the industry towards a better principles-based fiduciary world by stating, “I think it’s brilliant…these notorious high-fee products will naturally go extinct and their replacements, as well.” 

4. Fiduciary Rule: Yes, RIAs Must Also Adapt (Author- Skip Schweiss, Financial Planning)

According to retirement expert Skip Schweiss, the DOL’s conflict of interest rules are going to apply to RIA firms as well and firms “will need to adapt.” In particular, Schweiss notes that any investment advisory firm that services IRA accounts or provides advice related to IRA roll-overs will be subject to components of the new DOL fiduciary rule. On the topic of IRA roll-overs, investment advisers “will likely need to consider reviewing their process for recommending IRA rollovers and how they document that the recommendation was in the client’s best interest.” However, Schweiss does acknowledge that “fee-only RIAs who already have a fiduciary mindset should be well-positioned to comply with the new DOL requirements” compared to “hybrid advisors” that receive both commissions and fees. Schweiss also notes that rule does not phase in until April 2017 so advisory firms do have some time to get up to speed. 

5. The Department of Labor’s Finalized Fiduciary Rule: What You Need to Know! (Author- The Wagner Law Group)

Marcia Wagner, Managing Director of the Wagner Law Group, and one of our 5 DOL fiduciary rule experts every RIA firm should follow, has just published a very comprehensive analysis of the final DOL rule rivaling the DOL rule guide recently published by Michael Kitecs. In particular, the Wagner Law Group analysis also offers some detailed notes around the best interest contract (BIC) exemption for “level-fee fiduciaries” which is of most interest to fee-only RIA firms. In particular, this post highlights that “level-fee fiduciaries will need to comply with the BIC exemption even if there has been no pre-existing relationship with the plan.” This detailed post may require a strong cup of coffee but it’s a valuable read for all investment advisers.

Be sure to check out last week’s top RIA compliance news articles and check back next Friday for next week’s top articles!