Top RIA Compliance News Articles for the Week of February 2, 2018

1. Rollovers Present Biggest Risk During The DOL Transition (Author- Jerilyn Klein Bier, Financial Advisor Magazine)

During these uncertain moments in the timeline of the DOL fiduciary rule, Jason Roberts, Pension Resource Institute CEO, worries that rollovers could place advisors between a rock and a hard place. He stated this during a webinar hosted by RIA in a Box. Of three major regulators (DOL, FINRA, and the SEC), the DOL’s rules are the strictest regarding rollovers. Roberts argues that if an advisor is compliant with these, they’re compliant with all. Once again, the rule has to do with the client’s best interest, and this must be provable. Fred Reish, also a presenter at the RIA in a Box webinar, “dismissed the notion that the DOL rule requires investors to pick the best investment out there for their clients,” writes Bier. Reish also said, “People have been combining the conflict of interest rules and the fiduciary standard of care and mushing them together and just calling it the ‘fiduciary rule.” He argues that there is more to it than that.

2. SEC Singles Out fees, Conflicts in 2018 Exam Priorities (Author-Kenneth Corbin, FinancialPlanning)

The main focus for SEC inspectors this year is set to be “fees, compensation and use of digital advice,” Corbin states. The agency released its exam priorities, giving advisors a heads-up should the regulator show up on their front doorsteps. The goal is to protect especially senior investors and retirement accounts. Corbin adds, “Additionally the Office of Compliance Inspections and Examinations (“OCIE”) says it will scrutinize areas where firms might expose clients to the risk of excessive fees through practices such as selling higher-cost mutual fund share classes or failing to reassign an account after a registered representative leaves the firm.” Robo advisors and even advisors that mostly use online correspondence will also be a target. Of course, other items on the list are the ever-changing worlds of cybersecurity and cryptocurrencies.

3. Cryptocurrencies Get Word From SEC Inspectors: We Are Watching (Author- Ben Bain, Financial Advisor Magazine)

Speaking of cryptocurrencies, the SEC OCIE has their eye directly on the industry. They have already listed it as one of their annual exam priorities, citing that cryptocurrencies pose high risks for investors. Bain reports, “Jay Clayton has said that `cryptocurrency` initial coin offerings (“ICOs”) are improperly skirting SEC registration requirements and that the market is probably full of fraud.” In particular, OCIE wants to prevent theft, and make sure that investors know about all risks involved with cryptocurrencies. OCIE also suggests that market infrastructure is also put at risk.

4. Massachusetts Floats Fee Table Requirement for Advisors (Author- Melanie Waddell, ThinkAdvisor)

The state of Massachusetts is exploring a possible requirement for advisors to create standardized fee tables for investors. The idea is to “increase transparency,” and “enable comparison shopping”, Waddell says. “Advisors would be required to deliver the fee table to current and prospective advisory clients and include it on their websites.” William Galvin, Massachusetts’ Commonwealth Secretary, argues that a fee table is necessary, especially with the advent of new technologies in the financial sector. Galvin is however, open to other options, and is hoping to get feedback from advisors in his state. He is also asking about subadvisor fees, robo-advisors, and mutual fund fees. He also needs to be certain that clients can understand the fees.

5. FINRA Moves to Toughen Expungement Rules (Author – Margarida Correia, FinancialPlanning)

Removing customer complaints from regulatory records is a clear concern for most brokers. FINRA wants to ensure the proper safeguards are in place. According to Correia, “If the rules go through, brokers must have arbitrators unanimously agree to grant their expungement requests, a tougher standard than the current requirement of a majority agreement. Registered reps will also have to appear at hearings in person or via video conference and will no longer be allowed to participate via teleconference as they are now able to do.” There will also be a one-year time limit to file for an expungement. Andrew Stoltmann, the president of the Public Investors Arbitration Bar Association claims it is too easy for firms to remove complaints now, placing investors at risk. On the other hand, brokers state that they should be able to protect themselves from fake claims. 

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, cybersecurity, and the evolving role of the CCO.  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.