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. This week’s recap focuses on the Securities and Exchange Commissions (“SEC”) investor alert related to wrap fee accounts and the Department of Labor (“DOL”) fiduciary rule. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of December 15, 2017:
- SEC Cracking Down On Wrap Fee Abuses (Author- Tracey Longo, Financial Advisor Magazine)
Recently, the SEC released an investor bulletin regarding wrap fees, reports Longo. It is directed toward investors, and is meant to better educate general investors on how wrap fee programs work. The SEC also listed major firms that it has taken regulatory action against in the past related to wrap fees. Longo speculates that wrap fee accounts will increase in the future, but since the SEC is putting on the pressure, that advisors may shy away from utilizing them. The SEC has reported advancements in technology and focusing specifically on wrap fees themselves making it easier to detect wrongdoing. In addition, the new Form ADV now requires RIA firms to disclose additional information related to wrap fee arrangements.
- Fiduciary Rule Should Be Decided by Congress (Author- Mark Elzweig, FinancialPlanning.com)
Elzweig presents the case that some supporters of the DOL fiduciary rule are disappointed related to some unintended consequences. He writes, “advocacy groups like the Consumer Federation of America now gripe that some advisors are inappropriately shifting customers into more expensive fee-based accounts as opposed to cheaper commission-based accounts.” He goes on to say that the rule makes it more problematic for the advisor to charge commissions. Ultimately, Elzweig supports the idea that rather than regulatory agencies making rules such as the DOL, that elected officials should do so, and agencies should simply do the implementation and enforcement.
- Even In Limbo, The DOL Rule Drives Brokerage Attrition To RIA Model (Author- Christopher Robbins, Financial Advisor Magazine)
Robbins writes that the DOL rule is herding more and more people “into the RIA channel”. A recent survey of 134 advisors concluded that because of the rule, being in a brokerage is too difficult. Advisors are however, awaiting the outcome of the rule to make any moves, as it is delayed. There are other factors in advisors breaking free. “One-quarter of advisors also expressed a fear of losing revenue during a difficult transition as a reason for not going independent. Fewer advisors felt like the difficulties of business management, scale and brand were impediments to forming their own RIA, according to the survey,” notes Robbins.
- The RIA Space: Freedom and Flexibility Maximized (Author- Mindy Diamond, WealthManagement.com)
This is Mindy Diamond’s episodic podcast, available on SoundCloud. Diamond discusses the benefits of the independent RIA model, citing the “freedom and flexibility, plus the maximum ability to build long-term enterprise value.” This follows her last episode, which went into detail on the independent broker path. Diamond promises to inform on types of RIAs, the experience, benefits, and how to research going independent. She also confronts common fears of breaking away, such as the upfront fees and compliance. Even so, she states that the benefits, such as the customer-advisor relationship can be maximized, and in the long-term, this will outweigh the potential risks.
- These Are the Biggest Threats to Investors, State Regulators Say (Author – Melanie Waddell, ThinkAdvisor)
Waddell suggests that state regulators are going to have their hands full next year. She says, “the North American Securities Administrators Association has just released its annual survey of state securities regulators’ top five current investment practices, products or schemes they’ve encountered over the past year as well as what they see as ’emerging’ threats in the coming year.” Among these is promissory notes, causing problems for 74% of regulators. Another is oil and gas investments, contributing to enforcement action for half of regulatory agencies. Looking forward to 2018, cryptocurrency seems to be the looming issue, especially protecting senior investors from scams involving it.
Don’t forget to check out last week’s top RIA compliance news articles on broker protocol and the potential of an SEC fiduciary rule. 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.