Each Friday, we are 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. This week’s recap focuses on the Investment Adviser Association’s (IAA) push for a bill aimed to ease regulatory burdens on small advisers, the SEC’s new proposed cybersecurity rule, how the SEC has been addressing concerns about how messaging apps pose compliance threats, tips RIA firms can implement to increase their organic growth and the SEC’s message to financial professionals about cryptocurrencies.
Here are our top investment adviser compliance articles for the week of Mar. 24, 2023.
IAA renews push for bill to ease regulatory burdens on small advisors (Author – Mark Schoeff, Jr., Investment News)
The IAA has resumed its lobbying efforts to push a bill aimed at easing regulatory compliance requirements for small investment advisers. The bill, called the Investment Adviser Regulatory Flexibility Improvement Act, seeks to raise the threshold for SEC registration from $100 million to $150 million. The IAA says that the current threshold puts a significant burden on smaller advisory firms, who must comply with the same regulations as larger firms. The bill was introduced in 2019 but failed to gain traction in Congress. The IAA is hoping to renew interest in the bill and secure its passage this year.
Had a data breach? SEC wants you to tell clients within 30 days (Author – Dan Shaw, Financial Planning)
The SEC has proposed a new cybersecurity rule for broker-dealers, investment advisers and asset managers. The proposed rule would require these entities to notify individuals affected by certain types of data breaches which may put them at risk of identity theft or other harm. Covered firms would be required to notify customers of breaches that might put their personal financial data at risk within 30 days after the firm becomes aware of an incident. The proposal aims to address the expanded use of technology and corresponding risks since the Commission originally adopted Regulation S-P in 2000.
Currently, Regulation S-P requires covered firms to notify customers about how they use their financial information, but these firms have no requirement to notify customers about breaches. The proposal is subject to a comment period and would need to be approved before becoming effective.
SEC’s dive into messaging apps poses new compliance challenge (Author – Mark Schoeff, Jr., Investment News)
The SEC is increasingly examining messaging apps as part of its oversight of registered investment advisers. The use of messaging apps presents a new compliance challenge for advisers and broker-dealers who must supervise such communications. While instant messaging and other types of electronic communications can be efficient, they can also be difficult to supervise and retain for compliance purposes.
The SEC has been reminding advisers and broker-dealers that their policies and procedures for supervising electronic communications must also apply to messaging apps. The agency has brought enforcement actions against firms for failing to properly retain electronic communications, and firms may face penalties if they are unable to produce such communications during SEC exams or investigations. To comply with regulatory requirements, firms must have a system in place for capturing and retaining electronic communications, including those made on messaging apps, and ensure that employees are trained on the policies and procedures governing such communications.
How to commit to organic growth as a young RIA (Author – Dennis Morton, Wealth Management)
Organic growth refers to the process of building a client base through referrals, marketing and business development efforts, as opposed to growth through acquisitions. Organic growth is of tremendous importance to RIA firms, and Dennis Morton, co-founder and principal at Morton Brown Family Wealth, offers tips for RIA firms to increase their organic growth.
He recommends RIA firms:
- Build a strong brand and value proposition to differentiate their firms from competitors.
- Provide excellent customer service and create a positive client experience
- Focus on a specific niche or target market can help them stand out and attract clients who are a good fit for its services.
- Develop a robust marketing strategy, including content marketing, social media and email marketing.
- Build a network of professional contacts, such as attorneys, accountants and other financial professionals.
- Use technology to automate processes and streamline workflows.
- Continuously evaluate and refine the firm’s strategies and processes to stay competitive and adapt to changing market conditions.
SEC urges investors to be cautious with crypto securities (Author – Jamie Crawley, Yahoo! Finance)
The SEC has urged investors to be cautious when it comes to investing in cryptocurrencies, saying that many offerings are not registered with the agency, posing risks to investors. The SEC has also highlighted that the lack of regulation and safeguards in the crypto space may expose investors to fraudulent and manipulative practices. The agency noted that investors should exercise caution when evaluating investments in cryptocurrencies and seek professional advice if needed. The warning comes amid growing concerns about the risks posed by cryptocurrencies, which have been known to fluctuate rapidly in value and are often associated with scams and frauds.
Don’t forget to check out last week’s top RIA compliance news articles recapping on financial advisers attitudes toward Wealthtech, the SEC custody rule and the SEC’s 2023 examination plans.