Top RIA Compliance News Articles for the Week of January 14, 2017

1. Is Cyber Insurance Worth the Cost? (Author- Liz Skinner, Investment News)

As cyber attacks are become more common, RIA firms are seeking greater risk protection with a focus on obtaining additional insurance coverage. Unfortunately, navigating the various types of errors and omissions and cybersecurity insurance along with fidelity or financial institution bonds can be quite daunting. Liz Skinner writes that, “nearly 30% of financial advisory firms have cyber coverage in addition to their typical errors and omissions policies, according to preliminary data from an InvestmentNews adviser technology benchmarking study underway.” In addition, the Investment Adviser Association reports that around one-third of RIAs have cybersecurity insurance coverage compared to about 10% of firms in 2014. It’s very important that advisory firms perform proper due diligence to ensure that the selected insurance coverage covers all relevant scenarios from wire fraud to more traditional cyber attacks.

2. In Parting Words, SEC’s White Calls for Regulator to Avoid Political Meddling (Author- Sarah N. Lynch, Reuters)

Departing Securities and Exchange Commission (“SEC”) Chair Mary Jo White gave her final speech on Tuesday before stepping down after President-elect Donald Trump takes office. Ms. White’s speech touched on a number of issues but Sarah Lynch writes that Ms. White “had some harsh parting words for Congress on Tuesday and a plea to the incoming administration to ensure the regulator remains independent and insulated from political pressures.” Ms. White also stressed that, “continuing to build an effective post-crisis market regulator will mean imposing measures that sometimes draw sharp outcry from interest groups.” Ultimately, Ms. White acknowledged that her tenure was marked by “hard decisions that have attracted criticism from both political parties.”

3. How Obama Changed Investing Forever (Author- Ben Steverman, Bloomberg)

As President Barack Obama exits office, Bloomberg’s Ben Steverman writes that even if new President Donald Trump moves to overturn the soon to be implemented Department of Labor (“DOL”) fiduciary rule, that “it may be too late.” He cities Gary Shedlin, the chief financial officer of BlackRock, who recently acknowledged, “I personally don’t think you can put the genie back in the bottle…a better ecosystem for the end client will ultimately result in people feeling more comfortable to put money to work.” Steverman further writes, “Presidential attention didn’t just change the rules. It helped change how investors shop for financial help.” In a strong closing statement, Steverman presents the case that, “Congress and Trump may try to dislodge the new regulations, but some of the changes to Wall Street business models and investor perceptions look permanent…these days, if you’re an adviser sticking to the familiar sales pitch, be prepared for a barrage of tough questions.”

4. Sen. Warren Questions Firms on Their DOL Fiduciary Prep Ahead of Possible Delay (Author- Melanie Waddell, Think Advisor)
   

On the eve of President Trump’s inauguration, Senator Elizabeth Warren sent a letter to 33 financial firms asking for input on whether they support or are against the DOL fiduciary rule. Warren believes any delays in the rule will only hurt consumers as well as the financial advisors who have already taken the time to implement and comply with the new rule. Stated in Warren’s letter include questions specifically asking how much the firms have already spent on complying with the rule, steps taken to implement the rule, and if they plan to return more products to a commission-based model.

5. DOL’s New FAQs on Fiduciary Rule Focus on Circumventing Fiduciary Status (Author- Blaine F. Aikin, Investment News)

The DOL recently released a second set of frequently asked questions on the fiduciary rule helping to clarify when the fiduciary rule may or may not apply to RIA firms. fi360 Executive Chairman, Blaine F. Aikin, writes that “the most surprising aspect of these FAQs is they concentrate on behaviors by advisers that will legally and appropriately circumvent fiduciary accountability.” This second set of questions surprisingly focus on behaviors that don’t involve fiduciary accountability. The opening section is titled “Investment Recommendations Covered Under the Rule” and includes seven hypothetical situations. Then there are four sections, which include 28 questions, and deal with forms of non-fiduciary communications. However, Aikin does caution that, “the DOL’s coverage of non-fiduciary forms of communication are frequently coupled with a warning that it can be a relatively short step away from there to fiduciary investment advice.”

Don’t forget to check out last week’s top RIA compliance news articles focusing on the 2017 RIA examination priorities for the SEC and the potential future of the DOL fiduciary rule. Be sure to check back next Friday for next week’s top articles!