Each week, 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 Security and Exchange Commission (“SEC”) cryptocurrency regulation, proposed climate change risk disclosure requirements, and the path to RIA independency.
Here are our top investment adviser compliance articles for the week of March 18th, 2022:
1. Ex-SEC Commissioner Paredes on Regulating Crypto: SEC Roundup (Author – Nick Morgan and Tom Zaccaro, ThinkAdvisor)
Tom Zaccaro and Nick Morgan, both partners at Paul Hastings and former Securities and Exchange Commission (“SEC”) senior trial counsel, speak with former SEC Commissioner Troy Paredes regarding the “regulation of digital assets and what the future may hold for these evolving technologies and business models.” Paredes shares his interpretation of the SEC’s stance on digital assets and how the agency will determine whether a digital asset is deemed a security by applying the Howey Test for “the foreseeable future”. Watch the full conversation between Zaccaro, Morgan, and Paredes within the article.
2. SEC to Require Climate-Change Risk Disclosures Under New Plan (Author – Ben Bain, Robert Schmidt and Saijel Kishan, WealthManagement.com)
Under the Securities and Exchange Commission’s (“SEC”) new plan, the agency has proposed to require companies to disclose detailed information about their impact on greenhouse gas emissions. These businesses will need to “outline the risks a warming planet poses to their operations when they file registration statements, annual reports or other documents.” This decision is the result of months of internal debate, ultimately reaching the decision that this proposal will aid investors in making informed decisions, which is a main pillar of the SEC’s function. SEC Chair Gary Gensler stated, “over the generations, the SEC has stepped in when there’s significant need for the disclosure of information relevant to investors’ decisions. Today’s proposal would help issuers more efficiently and effectively disclose these risks.” The full article touches on the reactions from both sides of the aisle and what to expect if the proposal is approved.
3. Joining the Independent Wave? 3 Ways to Make It a Smoother Ride (Author – Land Bridgers, ThinkAdvisor)
Land Bridgers discusses the process of becoming an independent financial advisor and the importance of doing so for the right reasons. Many are excited by the prospect and the opportunities independence can provide but are basing their rationale on short-term reasons rather than long-term goals. Bridgers explains further, “Motivations matter when building an independent advisory business. One of the biggest pitfalls I see happens when advisors go independent because they’re running from a bad situation, rather than making a plan and moving thoughtfully toward something more positive.” Another point Bridgers makes is that clients are not as wary of the transition to an independent advisor as they once were, thanks to societal shift to more of a remote and online world over the last few years. Of course, a personal touch is still essential during the initial transition, but clients have learned to trust online resources and tools to get the job done. Read the full article for the extent of Bridger’s findings.
4. Advisors Wait Too Long To Focus On Succession Plans, Palaveev Says (Author – Jennifer Lea Reed, Financial Advisor)
In this article, Jennifer Lea Reed recaps Philip Palaveev’s opinions shared at the virtual annual Advisor Growth Summit. As founder and CEO of The Ensemble Practice and advisory firm practice management specialist, Palaveev’s session, “G2 – Building Your Next Generation,” outlined the steps founding advisors should be taking to ensure a smooth transition of succession. His points covered not just retaining clients but also to provide growth for the firm partners that will be included in the next generation of the firm before the transition occurs. The reason that founders need the next generation on board from the beginning is on the basis that the firm is growing, and has a planned path for a sequence of development over time for junior team members. Read the article further for additional insights on steps to consider in a succession plan.
5. Almost Half of Advisors Plan to Use Crypto: Cerulli (Author – Melanie Waddell, Think Advisor)
In this article, Melanie Waddell shares correspondence regarding Cerulli Associates’ new white paper, “Cryptocurrency: Navigating a Frontier Asset Class for Advisors and Asset Managers.” The white paper indicates nearly half of advisors expect to use cryptocurrencies at some point in the future — driven mainly by client requests and new product development. Additionally 80% of advisors report they are being asked about cryptocurrencies, while only 14% are using or recommending crypto. Ric Edelman, founder of the Digital Assets Council of Financial Professionals, said Monday in an email “Firms and advisors are slow to adapt to new technologies and investment opportunities, and crypto is the intersection of both… Within a couple of years, crypto will be a routine part of all diversified portfolios. And the sooner the advisory field understands this, the better off they and their clients will be.” Also noteworthy, Matt Apkarian, senior analyst at Cerulli, said “Many simply don’t understand or believe in the cryptocurrency as an investment. Advisors commonly believe that the definition of an investment involves the expectation of real return. Given the fact that crypto assets do not represent claims on a stream of income, advisors often believe that the assets lack the ability to be valued, or that they lack growth expectations.”
Don’t forget to check out last week’s top RIA compliance news articles that focus on the DOL fiduciary rule, breakaway advisors contributing to RIA industry growth, and potential robo-advisor scrutiny from SEC regulators.