Top RIA Compliance News Articles for the Week of April 2nd, 2021

      1. 4 Rules the SEC plans to Review This Year (Author – Melanie Waddell, Think Advisor)

In this article, Melanie Waddell discusses the four Investment Advisers Act rules the SEC has scheduled for review this year. When a rule is proposed for review, the agency is required to file the review under Section 610 of the Regulatory Flexibility Act. The agency is also required to consider the following when reviewing a rule: continued need for the rule; complaints and comments received; complexity; the extent of duplication or overlap with other government regulations; and the length of time since the rule has been evaluated or the degree to which technology, economic conditions, or other factors have changed. New or Amended rules proposed by the SEC will have a corresponding request for comment. Additionally, rules may or may not be finalized and have revisions based on comments received. Investment Advisors should keep this in mind as the following rules are scheduled for review; 1) Rule 204(b)-1, Form PF; 2) Registration Rule changes; 3) Rule 206(4)-5, Pay to Play; and 4) family office registration rule exemptions. Additionally, the article has a slideshow briefly overviewing the four rules.

      2. Attorneys Offer Tips On Preparing For Remote SEC Exams (Author – Tracy Longo, Financial Advisor)

The SEC continues remote examinations and they are no less rigorous. To prepare for a remote examination, advisors should be attentive to their Form CRS, more specifically the disciplinary history, and ensure there is a consistent presentation of all the information in the document. The Form CRS’ accuracy and effectiveness should be top of mind for CCOs to ensure clear documentation that a firm is mindful about its fiduciary responsibilities. The article further discusses the following important tips to ensure fluidity and accuracy across multiple and remote offices: designate who is responsible for operational complexities; standardize and approach policies and procedures at an enterprise level; harmonize disclosures for environmental, social, and governance investment activity; and ensure disclosures and the marketing strategy match and stay consistent in practice. 

      3. Is an AML Crackdown Coming for RIAs? (Author – Melanie Waddell, Think Advisor)

Talk of the reemergence of anti-money laundering (“AML”) proposals for investment advisors comes with a recently issued risk alert detailing broker dealers’ anti-money laundering failures. The Financial Industry Regulatory Authority (“FINRA”) reported 14 AML cases last year, a top-fine getter, resulting in 16.2 million in fines. Investment advisors still aren’t technically subject to AML rules issued by the Treasury of Financial Crimes Enforcement Network. Although, the 2016 investment advisor AML proposals have been sitting dormant for the least four years, and a Gensler Led SEC may revive the AML policy plan for RIAs.

      4. Small custodians, big business (Author – Jessica Mathews, FinancialPlanning)

Small custodians are seeing an opportunity to appeal to financial advisors breaking into the RIA channel as well as attracting unhappy firms looking to move their books. While Schwab is the largest player in the market, more than a dozen small custodian firms are re-thinking the settlement process, trying new pricing models, and focusing on improving advisor efficiency and service. Over ten years, from 2009 to 2019, RIA assts grew from 2 trillion to 5.7 trillion according to data from Cerulli Associates. Competition between custodians for business in the growing RIA industry heightens. These small firms are looking to improve upon their competitors service gaps, with a more personalized service to RIAs. Additionally they’re appealing with key innovations and infrastructures like direst indexing, speeding up trade settlement, and improving speed for account openings, funding, trading, reporting, and billing processes.

      5. SEC’s ESG Plans for Public Companies May Get Frosty Reception in Court (Author – Nicolas Morgan, Think Advisor)

Around this time last year, the long-standing requirements that companies were “required to disclose all material information – on whatever topic – that would be necessary to avoid making management’s discussion and analysis of a company’s operations misleading” was confirmed by the SEC. This year, there is a call for more requirements, specifically regarding climate chance issues. Environmental, Social, and Corporate Governance (“ESG”) disclosures have a spotlight on them partly stemming from recommendations made by the Task Force on Climate Related Financial Disclosures, established in 2015 by a global group of regulators. Their recommendations recognize the importance of aligning disclosures and what’s becoming more important to investors, climate change. Climate change disclosures were among the discussed during the March 2nd Senate Banking Committee hearing. During this nomination hearing for Gary Genlser to be chair of the SEC, he made a statement that investors “really want to see climate risk disclosures,” and new disclosure requirements would be based on what is “material to reasonable investors.” 

Don’t forget to check out last week’s top RIA compliance news articles that focus on the Securities and Exchange Commission’s (“SEC”) ad rule guidance, cybersecurity risks for RIA firms, and regulatory and legislative rules for advisors due to the administration change.