Each week we’re 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. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of April 23, 2016:
- Obama Administration Vows to Veto House Resolution to Kill DOL Fiduciary Rule (Author- Mark Schoeff Jr., InvestmentNews)
The White House reported on Wednesday that President Barack Obama will veto a House resolution designed to kill the new Department of Labor (DOL) fiduciary rule. As Mark Schoeff Jr. reports, the resolution is being put forward as part of the Congressional Review Act. The act gives Congress the power to vote against the release of a final rule within 60 days. However, given that President Obama has vowed to veto any such resolution and that the Republican majority is unlikely secure a two-thirds majority in either the House or the Senate, the final DOL fiduciary rule seems highly unlikely to be overturned at this point.
- Fiduciary Rule Should Push FINRA Arbitration Overhaul (Author- Bob Dannhauser, Financial Planning)
Some industry observers were surprised that the final DOL fiduciary rule does not prohibit the use of mandatory arbitration clauses for broker dealer firms regulated by the Financial Industry Regulatory Authority (FINRA). In this thoughtful piece, Bob Dannhauser, head of capital markets policy at the CFA institute, writes that, “the DOL obviously took to heart critics’ comments about unbounded liabilities for advice providers in the proposed rules. It is essential that the bodies responsible for resolving related investor claims also take the steps to ensure a balanced and transparent system that honors the principle of putting investors first.” To read more about some of the challenges of the arbitration system as articulated by Dannhauser, be sure to check out this story.
- What Does ‘Best Interest’ Mean Anyway? Texas Tech Seeks More Clarity on DOL Fiduciary Rule For Advisers (Author- Christine Idzelis, InvestmentNews)
While the new DOL rule is quite lengthy and detailed, it does not explicitly define the “best interest” standard. As Christine Idzelis reports, John Gilliam, an associate professor at Texas Tech, has formed the “Best Interest Initiative” which will allow fellow faculty members at Texas Tech to further research and determine how the industry should define “best interest.” To read more about this initiative by Professor Gilliam and similar efforts being led by Knut Rostad of the Institute for the Fiduciary Standard, be sure to check out this quick read.
- Enforcement: SEC Bars, Fines Principals for Not Supervising CCO (Author- Marlene Satter, ThinkAdvisor)
In a recent Securities and Exchange Commission (SEC) enforcement action, two principals of an RIA firm were barred by the SEC for failure to properly supervise the firm’s Chief Compliance Officer (CCO). As Marlene Satter reports, “The (principals) never took any action to ensure that (the CCO) was carrying out the responsibilities of a CCO, instead assuming that because he was CCO he was engaging in such activities as custody exams and compliance reviews when in fact he did none of those things. When they learned (the CCO) had failed to cooperate with auditors or engage accountants for surprise exams, they did not follow through with any actions to bring about compliance.” The details of this particular enforcement case aside, it does highlight the importance of an RIA firm’s principals to properly supervise all staff members including the firm’s Chief Compliance Officer.
- Repeat After Me: 12b-1s, Succession Planning, Third-Party Audits (Author- Melanie Waddell, ThinkAdvisor)
As Melanie Waddell reports, the SEC made it clear during their recent investment adviser compliance cummit that they are focusing on three large initiatives this year: 12b-1 fees, succession planning, and third-party RIA audits. The “Share Class Initiative” is something the SEC plans to begin by the end of the year. On the topic of succession planning, Diane Blizzard, director of the SEC’s Division of Investment Management, notes that the agency also continues to work on a rule that will require advisors to “create and maintain” transition plans. In regards to third party investment adviser exams, Blizzard highlights that the agency is “still developing” a proposal and that such a program will be designed to provide “additional touches” as opposed to replacing traditional SEC audits.
Be sure to check out last week’s top RIA compliance news articles and check back next Friday for next week’s top articles!