Each week we’re 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. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of July 16, 2016:
- DOL Fiduciary Guidance Coming Soon (Author- Melanie Waddell, Think Advisor)
Many questions have arose since the Department of Labor (DOL) released its new fiduciary rule. The DOL plans to address these questions shortly and Timothy Hauser, chief operating officer of the DOL’s Employee Benefits Security Administration, addressed some “technical corrections” while speaking at the Investment Management Consultants Association’s Focus on Fiduciary event in Washington. David Blass, general counsel for the Investment Company Institute, also reveals some “some initial decisions” will be delivered by the courts in reference to the five cases currently filed challenging the rule. However, Hauser notes that while more guidance is likely to come in the future, “the rule is final, this is going to be the law.”
- The Short Scoop on Wall Street’s Claim That the DOL Rule is Too Long (Author- Ron Rhoades, RIA Biz)
Ron Rhoades, one of our top 5 DOL fiduciary rule experts, makes the case in this thoughtful piece that while “Wall Street lobbies have recently berated the U.S. DOL fiduciary rules for their length and complexity…a close examination reviews both the rules’ elegance and how the DOL’s strong effort to accommodate Wall Street compensation practices was the reason for the rules’ reputed length.” In particular, Rhoades notes that the official “Conflict of Interest” rule is only five pages in length. Ultimately, Rhoades presents the opinion that the real reason behind the lobbies’ efforts to throw our the rule is that “they will actually will be required to place clients’ interests ahead of their own.” Be sure to check out this thought provoking piece for more detailed analysis and to view a copy of the 237-word “Impartial Conduct Standards” which are a key component of the new rule.
- Encrypting Emails, Files for Clients is Crucial, But Not Always Followed (Author- Alessandra Malito, Investment News)
According to author Alessandra Malito, it is suggested that one of the best ways to secure sensitive information for clients is by encrypting emails and shared files. However, as Malito notes, many RIA industry experts do not see widespread use of encryption. According to the North American Securities Administrators Association (NASAA) cybersecurity survey which is cited in the article, 46% of advisory firms do not utilize encryption. Ultimately, encryption is just one step advisers should take to prevent a possible breach from happening and to keep clients’ personal and sensitive information safe and secure, but it’s an area that deserves increasing attention.
- New Conflict of Interest Concerns: SEC Fines RIAs for BD Loans (Author- Ann Marsh & Charles Paikert, Financial Planning)
Two RIA firms were recently censured and fined by the SEC for failure to disclose conflicts of interest related to forgiveable loans made to the firms by broker-dealers that each firm was affiliated with. The SEC made the case that the “loans constituted a conflict of interest” because the broker-dealer required the firms to “use its services and to keep client assets with the broker-dealer.” The Chief Compliance Officer (CCO) of all investment advisory firms should review this article to identify whether any similar conflicts of interests may exist at their firm and if so, ensure that they have been properly disclosed.
- Advisory Group Recommends SEC Expand Pool of Accredited Investors (Author- Mark Schoeff Jr., Investment News)
The SEC’s Advisory Committee on Small and Emerging Companies wants to expand the number of investors eligible to buy unregistered securities. On Tuesday, the advisory committee approved a recommendation that would expand the “definition of an accredited investor to include those who have passed the Series 7, 65, or 82 licensed exams or who have obtained a charter financial analyst or similar credential.” According to Mark Schoeff Jr., the current definition includes investors who have earned $200,000 in each of the past 2 years or who’s net worth is greater than $1 million. Separately, the Investment Adviser Association (IAA) has been advocating for clients of RIA firms to be deemed accredited investors as well. However, this addition was not presented by the advisory committee.
Don’t forget to check out last week’s top RIA compliance news articles on testing business continuity plans and the new SEC investment share class RIA exam sweep initiative. Be sure to check back next Friday for next week’s top articles!