Top RIA Compliance News Articles for the Week of February 9, 2018

1. If Finra Eases Firm Oversight of Outside Business Activities, Broker-dealers Could Lose Revenue (Author- Mark Schoeff Jr., InvestmentNews)

“A pending Finra proposal to ease the requirement that brokerages supervise their representatives’ work with unaffiliated registered investment advisers sounds like regulatory relief,” Shoeff writes. Even so, brokerage firms are concerned as some believe they may still be exposed to risk even if they are not required to monitor the outside business activity of operating an independent RIA firm. However, as Schoeff writes, “depending how it’s written, obviating the need to supervise RIA work also eliminates the need to charge for that service.” It’s possible that no longer would independent broker dealers be able to justify charging a “compliance supervision fee” to hybrid firms. Generally, these fees have served as an additional profit center to independent broker dealers. 

2. Interesting Angles on the DOL’s Fiduciary Rule #79 (Author-Fred Reish, FredReish.com

Reish continues to be concerned with misconceptions regarding the DOL fiduciary rule, specifically, the phrase “reasonable compensation”. Reish relays, “The myth is that the SEC will draft rules that eliminate the reasonable compensation rule. That is incorrect. The reasonable compensation limitation on advisors and their supervisory entities is here to stay.” He emphasizes that while portions of the rule are in a state of flux, the reasonable compensation component is finalized and fully applied. Reish also notes its statutory status, meaning no regulatory agency can get rid of it. Also, because the compensation rule is part of the prohibited transaction rule, “the burden of proof is on the financial institution, and not on the retirement investor.” 

3. SEC Seeks Budget Boost to Restore Staff (Author- Melanie Waddell, ThinkAdvisor)

The Senate and House of Representatives have been working out a budget for the past two weeks. As a part of it, the SEC asked for $1.66 billion to fund itself for 2019. In 2017, a hiring freeze was instated, and this boost would allow the agency to refill staff lost during that time. The growth of the industry they regulate has far outpaced their own, but even so, the SEC doesn’t have 2018 funds yet either. SEC Chairman Jay Clayton is optimistic despite this. Waddell reports, “The agency expects to end 2018 with 4,528 positions. To stay within the SEC budget level of $1.6 billion, the agency imposed a hiring freeze at the beginning of FY 2017 that will continue throughout FY 2018.” Not only would staff be included, IT systems and technology upgrades would be implemented should the budget request be granted.

4. SEC Giving Advisors Who Didn’t Reveal 12b-1 Fees Time To Come Clean (Author- Dan Jamieson, Financial Advisor Magazine)

The SEC has created a program that will allow RIA firms to “self-report disclosure violations” related to 12b-1 fees and potentially settle without punitive costs. Jamieson quotes the official release, “The program, called the Share Class Selection Disclosure Initiative (SCSD Initiative), covers advisory firms that failed to disclose conflicts of interest ‘associated with the receipt of 12b-1 fees by the adviser, its affiliates, or its supervised persons for investing advisory clients in a 12b-1 fee paying share class when a lower-cost share class of the same mutual fund was available for the advisory clients,’ the SEC said in a release.” The program will end on June 12 of this year and the SEC has stated any future violations could be more heavily sanctioned. 

5. At T3, the Next Wave of Financial Advisors Are Part Coders, Part Planners (Author – Suleman Din, FinancialPlanning)

This year at the T3 Advisors Conference, a competition was introduced for students to produce “fintech”. A group from Utah Valley University won the competition by partnering with Orion and creating a chatbot. Called Rigel, the bot “seamlessly integrated with Amazon Alexa, Google Assistant, Slack and Skype. The bot was able to take either typed requests or spoken questions for information about clients or accounts,” Din writes. In addition, RIA in a Box was very proud to support a student group from the University of Akron that helped to further develop our forthcoming vendor due diligence tool. 

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, SEC 2018 examination priorities, and cryptocurrencies.  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.