Top RIA Compliance News Articles for the Week of February 27, 2016

1. Broker Misconduct is Worse Than We Thought: Ritholtz (Author- Barry Ritholtz, Financial Planning)

According to the recently released study titled “The Market for Financial Adviser Misconduct” published by the University of Chicago and University of Minnesota business schools, 1 in 13 brokers have misconduct-related disclosures in the FINRA BrokerCheck database. About a third of them are repeat offenders and the misconduct appears to be more common in regions with higher concentrations of wealthy, elderly people. As Barry Ritholtz writes in regards to the high percentage of misconduct-related disclosures, “there’s no other way to put this: that’s just astonishing.” Check out this article to read more on the findings from the study and how Ritholtz ultimately concludes that the fiduciary standard should perhaps become the standard for the entire financial advice industry.

2. Many Advisors Get Failing Grade on Cybersecurity (Author- Kenneth Corbin, Financial Planning)

In this article, Kenneth Corbin reports that advisors and brokers aren’t doing enough to protect their information technology systems and the valuable client information they contain. Cybersecurity is a top priority for the Security and Exchange Commission (SEC) and the SEC is conducting more exams in order to evaluate how advisors and brokers are addressing information security. The commission has started its second phase of their cybersecurity initiative which is described by Kevin Goodman, Associate Director at the SEC’s Office of Compliance Inspections and Examinations, as “testing approach” compared to a “correspondence effort” utilize during the initial cybersecurity exam sweep initiative. In addition, Stephanie Avakian, Deputy Director of the SEC’s Division of Enforcement, has provided some additional guidance as to when the SEC may consider taking an enforcement action against an RIA firm as it relates to cybersecurity. In particular, Avakian stresses that “whether a company self-reports to law enforcement is a critical factor” and that the SEC “will give significant credit to companies that self-report.” This is a must read for the Chief Compliance Officer (CCO) of all RIA firms when trying to better implement policies and procedures related to a cybersecurity breach.

3. The SEC’s Priorities in a Tricky Year (Author- Melanie Waddell, ThinkAdvisor)

SEC Chairwoman, Mary Jo White, claims 2016 should be a busy year for the agency in terms of rule making and a proposal related to third-party audits for RIA firms. Former SEC Chairman, Harvey Pitt, believes White could likely continue pushing a fiduciary plan regardless of which party wins the White House because she is a “true independent.” Although White may depart after the upcoming election, Pitt claims “the logical thing to anticipate is that any president should consider himself or herself fortunate to have her stay on.” Read more on the plan for third-party advisor exams, how they will complement SEC exams, and the potential costs and benefits of them. As the Investment Adviser Association and we, as RIA compliance consultants, have previously stated, we do share concerns around the ultimate cost of these 3rd party investment adviser audits which could easily start at more than $12,000 per exam.

4. Mind those Emails: Don’t Fall Victim to a Cyberattack (Author- Alessandra Malito, InvestmentNews)

According to Alessandra Malito, one of the biggest cybersecurity threats financial advisory firms face are hacked emails of clients and top managers. The threats are designed to trick advisers and their staff into transferring money or privileged data. It has become a regular occurrence for the business world today and while some firms are quick to catch this, many other businesses have fallen victim. A few ways to identify a malicious email is by the tone of the message or by paying attention to even the smallest details, such as if an email address or signature line is slightly amiss. Staying educated on this topic and remaining cautious when it comes to cybersecurity issues is an essential component of preventing a cyber attack. As RIA compliance consultants, we strongly recommend that advisory firms require proper verbal confirmation before fulfilling any client wire request.

5. Just in time for March Madness, SEC to Launch Ads Promoting Adviser Background Checks (Author- Mark Schoeff Jr., InvestmentNews)

Financial regulation is scheduled to become a part of March Madness this year in the form of television commercials. 30-second television and radio spots as well as online and print ads encouraging use of the new SEC adviser public database will be featured. This campaign is said to encourage investors to ensure they are dealing with a licensed investment professional before making an investment decision. 

Be sure to check back next Friday for next week’s top articles!