Each week, we are 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 regulatory Form CRS filing failures, the fiduciary rule, and the path to independence.
Here are our top investment adviser compliance articles for the week of February 11th, 2022:
1. SEC Slams 12 More Firms for Form CRS Failures (Author –Melanie Waddell, Think Advisor)
Earlier this week the Securities and Exchange Commissions (“SEC”) announced settlements with another 12 firms in regard to failing to file and deliver a customer relationship summary (“Form CRS”). The SEC has now charged 42 firms for failing to meet obligations regarding Form CRS. Sanjay Wadhwa, deputy director of the SEC’s Enforcement Division, explained further what these charges mean and what the Commission hopes to see moving forward. All firms were charged with “failing to meet the obligations that are required to ensure retail investors understand their relationships with their securities industry professionals.” Wadhwa encouraged firms “that continue to be delinquent in fulfilling their Form CRS obligations to come into compliance with the law and to self-report to the SEC.”
2. CFP Board, Investor Advocates Tell Congress A Stronger Fiduciary Rule Is Needed (Author – Tracey Longo, Financial Advisor)
Several organizations across the industry are calling on the Department of Labor (“DOL”) to create tougher regulations for the fiduciary standard to protect investors. Retirement savings were cited as a main concern during the DOL briefing earlier this week, with Kamila Elliot, Chairwoman of the Certified Financial Planner (“CFP”) Board, stating that “people investing their hard-earned savings deserve to know that the financial professional advising them is working solely in their interest.” In addition, Elliot explained that “the current five-part test that determines whether a financial professional meets the definition of fiduciary is woefully outdated. It was adopted in 1975 when IRAs had just been created and 401(k)s didn’t even exist. So, it isn’t necessarily a matter of adding to the DOL rules, it is about updating and modernizing them to reflect a world when most Americans are personally responsible for managing their own retirement savings.”
3. Breaking Away Was The Hardest Thing We’ve Ever Done. And We’d Do It Again (Author – Renee Wahl, InvestmentNews)
In this article, Renee Wahl, Director Of Operations at Vardhan Wealth Management, describes her path to RIA independence. Her and her team describe the breakaway from a wirehouse firm as some of “the hardest, most nerve-wracking, and stressful experiences of my professional life.” From the perspective of clients, a breakaway move comes out of nowhere, since there’s no advanced notice. She said “its nerve-wracking to learn, one call at a time, how much faith your clients really have in what you can do for them.” Her big takeaway is clients need to hear how they are better off with your newfound independence and explaining the benefits to fiduciary investment advice, maintaining great endurance transitioning your clients over. Three points of advice wrap up this article: 1) Don’t give up, but don’t stop moving forward, 2) Focus on hour your clients will benefit, and 3)Find support everywhere you can.
4. How Has the Pandemic Affected Finserv Compliance Teams? (Author – Bill Simpson, WealthManagement.com)
Since COVID-19, communicating remotely has been a necessity for the RIA industry. As a result, regulators have taken note and increased scrutiny of that activity. There as been a series of high-profile enforcement actions with respect to electronic communications that has prompted compliance leadership to reconsider resource allocations. Their approach to risk mitigation needs maturing. With an evolving regulatory environment, mature teams know that they have to instill processes throughout the organization that document all potential types of communications. Controls need to be in place to provide evidence of review, and it has to be explainable to regulators. Failure to execute this could result in large fines and an overhaul of compliance operations. The last thing firms want is to be caught not monitoring something. Bill Simpson concludes the article stating, “most mature firms have invested in technology and taken on a proactive compliance role.”
5. FBI Calls Crypto ‘Only Game In Town’ As Ransomware Flourishes (Author – Erik Schatzker, Financial Advisor)
This article discussed concerns around cryptocurrency and how government agencies will need to navigate the real risks of cybersecurity. Bad actors are embracing digital innovations so rapidly that law enforcement can’t keep up, according to the Federal Bureau of Investigation (“FBI”). Criminals love Bitcoin because it’s effectively un-hackable and can be transferred in large amounts almost instantly without ever touching the banking system. The virtual token is almost always the form of payment demanded in ransomware attacks, such as those using malware to paralyze computer networks. When deceiving, misinforming and defrauding by impersonating others is the strategy executed by these cybercriminals, the companies targeted are discouraged to submitting to extortion.
Don’t forget to check out last week’s top RIA compliance news articles that focus on Continuing Education rules, a Securities and Exchange Commission (SEC) cyber rule proposal, and proposed private fund acquisition disclosure speed changes.