Top RIA Compliance News Articles for the Week of July 2, 2016

1. Wyoming Poised to Scrutinize its RIA Industry for the First Time (Author- Christine Idzelis, Investment News)

Next year, a law in Wyoming will take effect that requires 21 investment adviser firms representing $518 million in assets under management (AUM) to switch to a state registration from current federal registration with the Securities and Exchange Commission (SEC). According to Kelly James, director of compliance division of the Wyoming Secretary of State, “Wyoming has been concerned about firms setting up businesses in the state to take advantage of its lack of jurisdiction.” Historically, the state of Wyoming has not had an RIA registration an examination program. There has been concern in the past that some firms may be trying to mislead investors into believing they are larger than they actually are by claiming Wyoming to be their primary place of business and then registering with the SEC, thereby implying they have a higher level of regulatory AUM. Check out this article to find out more.

2. Advisers May Get New Tools to Combat Elder FInancial Abuse (Author- Kenneth Corbin, Financial Planning)

On Tuesday, July 5, a bill was passed called The Senior Safe Act that extends protection to advisers who report suspected elderly abuse. FSI CEO Dale Brown suggests “this legislation would allow financial professionals to report abuse to government organizations without violating privacy laws.” Compliance officers and firm supervisors will not be held liable under this bill. Some states such as Alabama, Indiana, and Vermont have already passed laws that require advisers to report suspected abuse. In the end, financial professionals are agreeing the purpose of this legislation is likely a step in the right direction.

3. Why More Advisers Want to Become RIAs (Author- Mark Elzweig, Financial Planning)

The new Department of Labor (DOL) fiduciary rule has had some major impacts on the reasoning for advisers making the decision to switch from wirehouses to becoming independent. According to Mark Elzweig, the independent RIA model offers the most protection from “the DOL’s regulatory onslaught against commission-based business.” Another reason that many advisers are going the independent route is because this allows them to drop their Series 7 license and no longer be subject to broker dealer compliance requirements. While these circumstances have always been the case for independent RIAs, the DOL rule has definitely reignited interest and brought more attention to the benefits of making the decision to start an independent RIA firm.

4. SEC to Put Investors’ Understanding of 12b-1 Fees to the Test (Author- Melanie Waddell, Think Advisor)

According to Rick Fleming, SEC Investor Advocate, his office will start to push an investor testing program with the purpose to examine the efficacy of mutual fund cost disclosures. This testing program is said to begin next year and will include 12b-1 fees. Fleming states “mutual fund fees have a direct impact on investor returns” and “potential mischaracterization of fees may lead them to invest in funds that they would not otherwise have selected.” The purpose of the testing is to inform a long term effort to improve disclosures as well as help investors to understand the impact decisions based on these costs may have on their returns. Waddell elaborates on the SEC’s motives behind this testing program in this article.

5. Investment Adviser Association wants RIA Clients Designated as Accredited Investors (Author- Mark Schoeff Jr., Investment News)

The Investment Adviser Association (IAA) encouraged the Securities and Exchange Commission (SEC) to expand the definition of accredited investors to include the clients of registered investment advisors (RIAs) regardless of their income and net worth. The SEC has the responsibility of reviewing the accredited-investor standard every four years and may revise it if needed. Some believe expanding this title will force investors to “fend for themselves.” On the other end of the spectrum, other advisors view this as more of a liability rather than a benefit. However, if advisors aren’t comfortable making risky decisions that could put them at risk, they do not have to make these decisions. The House approved a bill already that would expand “accredited investors” to include people who have a securities license, but does not yet include clients of advisers.

Don’t forget to check out last week’s top RIA compliance news articles on rules mandating succession planing and protections for those reporting elder-financial-abuse. Be sure to check back next Friday for next week’s top articles!