Top RIA Compliance News Articles for the Week of March 30, 2018

1. What the 5th Circuit Decision Doesn’t Do (Author- Fred Reish, InvestmentNews)

If the DOL fails to appeal, the recent court decision impacting the fiduciary rule could be permanent. But Fred Reish points out a caveat: “But you may not have heard that the court decision doesn’t apply to services. That means that investment management services for retirement plans, participants and IRAs will continue to be fiduciary activities.” Reish states that this means “discretionary investment management of plans and participants — which are subject to Employee Retirement Income Security Act (“ERISA”) — must comply with the prudent man rule and the duty of loyalty. And any compensation resulting from those services, other than a level advisory fee, is a prohibited transaction, for which very few exemptions are available.”  An individual retirement account advisor would then be regulated by the SEC. Reish sums up by stating the differences between discretionary and non-discretionary regulations, and urges professionals to research prohibited transaction rules.

2. CFP Board May Revise Fiduciary Standard if SEC Sets a Higher One: Keller (Author- Melanie Waddell, ThinkAdvisor)

“As certified financial planners continue to digest the Board of Standards’ just-approved expansion of their fiduciary obligations to all types of financial advice, the CFP Board may be open to further changes if the Securities and Exchange Commission’s (“SEC”) forthcoming fiduciary rule sets a higher standard,” says Waddell. The new standards boil down to industry professionals practicing fiduciary duty at all times. However, the Board has stated that if the SEC comes up with tighter restrictions, they may revise their already-new code, which took more than two years of work to implement. Because of multiple regulators providing standards, some people have complained about the CFP’s guidance, and worry about confusion once the SEC takes its own shot. 

3. Will Brokerages Comply with CFP Board’s New Fiduciary Standard? (Author- Diana Britton, WealthManagement.com)

Though more than a year will go by before the new CFP fiduciary standards become effective, some wirehouses are panicked over the idea. Many firms, like UBS, have argued for the CFP to wait for the SEC to issue a Code of Conduct. Even so, CEO of the Board, Kevin Keller, believes he can calm fears. “We’re trying to strike a balance here between the needs of the consumer and the recognition that firms must take steps to operationalize the standards for their advisors. We believe that we’ve done `that` by emphasizing a fiduciary standard for providing financial advice while also modifying the original proposal so that it is more practical for firms.” Despite Keller’s words, some worry that major firms may disregard the CFP’s new standards due to a lack of enforcement.

4. DOL Fiduciary Rule Sparks Charges of Reverse-Churning (Author- Mark Schoeff Jr., InvestmentNews)

To comply with the partially implemented DOL rule, the natural inclination of most industry professionals was to move clients away from commission-based fees. This has yielded some unintended consequences. “In a complaint filed against Edward Jones and three other advisory firms, the plaintiffs alleged that they had been moved from commission-based accounts into fee-based accounts between 2013 and 2018 despite the fact that they did little trading. The suit alleges that Edward Jones transitioned the plaintiffs into fee-based accounts under the cover of the DOL fiduciary rule, which requires brokers to act in the best interests of their clients in retirement accounts,” Schoeff reports. The plaintiffs are arguing this was done even if it was not in their best interest. Of course, all of this hangs in the balance at the moment due to the 5th Circuit Ruling.

5.  Most Wirehouse Advisors Will Never Go Indie. 3 Reasons Why. (Author – Mark Elzweig, FinancialPlanning)

While Mark Elzweig does note the success of advisors breaking into independence, he argues the majority “will never fully embrace the independent model.” Essentially, he says, there’s simply no comparison between the amount of wealth spread between each category. Despite the attractiveness of independent advising, Elzweig believes people stay in wirehouses because of comfort, security, and name recognition. Ease of operation is also brought up. It’s hard to spend time advising if you’re filling out compliance paperwork. Elzweig takes a deeper dive into three of these: setting up/running an independent RIA firm; self-branding; and big money immediately. He does not however, advocate for either one. He encourages knowing what you want, and knowing your perspective. 

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the current and future solo advisor “golden age”, and proper fee disclosures.  Be sure to check back next Friday for next week’s top articles! 

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.