Top RIA Compliance News Articles for the Week of May 14, 2016

The Securities and Exchange Commission (SEC) has announced that it plans to release a new uniform fiduciary standard rule proposal for both RIA firms and brokers in April 2017. However, as Schoeff notes, “the agency does not have to adhere to the timetable.” As such, it’s unclear when such a uniform fiduciary standard may become a reality, if ever. However, the potential movement towards a uniform fiduciary standard does continue to receive renewed focus with the recent release of the new Department of Labor (DOL) fiduciary rule. In addition, the SEC also stated that it does not plan to release a proposal for third party RIA audits until next spring. This comes as somewhat of a surprise as many had anticipated the SEC would release the third party examination proposal perhaps as early as this fall. However, some industry observers still believe that a 3rd party investment adviser audit proposal could come sooner from the SEC including Neil Simon of the Investment Adviser Association who states, “we believe it is highly likely we will see a proposal on third-party exams in the months ahead.” 

2. Fiduciary Rule Will Hasten Advisors’ Fee-Based Transition, Says SEI Exec (Author- Karen DeMasters, Financial Advisor)

In this piece by Karen DeMasters, John Anderson, head of practice management solutions for SEI Advisor Network, presents the case that the “DOL fiduciary rule will accelerate what has been happening in the financial advisory business for years: the gradual transition of firms from commission-based to fee-based operations.” As such, Anderson argues that commission-based financial advisors should see the new DOL fiduciary rule as an opportunity to “convert to fee-based pricing” rather than a new regulatory burden. Furthermore, Anderson notes that often a fee-based practice provides a more “steady revenue stream” which is not dependent on “how much product the advisor can sell in a year.” In particular, this is a great quick read for advisors currently affiliated with independent broker dealer (IBD) firms that may be considering starting their own RIA firm.

3. 6 DOL Fiduciary Tasks to Tackle Before First Deadline (Author- Bernice Napach, ThinkAdvisor)

Financial advisors will need to begin to comply with the new DOL fiduciary rule on April 10, 2017. While full compliance is not required until January 1, 2018, Nancy Reich, executive director of financial services at Ernst & Young, stresses advisors must have many things in place by the April deadline. This may seem like a generous amount of time to transition and conform to the new rule, however advisors should realize that April 2017 may come faster than many anticipate. Some of the requirements that Ms. Reich outlines that should be in place by the April deadline include: adhering to the impartial conduct standards, notification of fiduciary status and applicable conflicts of interest to retirement investors, and designating an individual at larger firms to implement new policies and monitor compliance with the new standards. In addition, Bernice Napach does a great job breaking down six areas of focus for advisors that were recently outlined by DOL Deputy Assistant Secretary Timothy Hauser. These six areas are: recommendations, compliance, documentation, dedicated Chief Compliance Officer, communication, and product mix. 

4. Fiduciary Rule: Should Advisers Wait to See Who Wins the White House? (Author- Charles Paikert, Financial Planning)

At this week’s Envestnet Advisor Summit, a number of regulatory experts debated how long it should take an RIA firm to comply with the new DOL fiduciary rule and whether investment advisers should “wait until the presidential election to begin implementing the new fiduciary rule?” Charles Paikert covers both sides of the argument with one expert making the case that the president election could derail the new DOL fiduciary rule. However, on the other hand, Clarke Camper, the senior vice president of government affairs for Capital Group’s American Funds, disagrees. He believes that waiting to see who becomes president is a  “high risk strategy.” According to Camper, “even if a Republican wins, it’s unlikely the DOL rule would be high on the list of actions by the Obama administration the GOP would want to roll back.”

5. SEC Says Cyber Security Biggest Risk to Financial System (Author- Lisa Lambert and Suzanne Barlyn, Wealth Management)

Earlier this week at the Reuters Financial Regulation Summit, SEC Chair Mary Jo White made it clear that “cyber security is the biggest risk facing the financial system.” In regards to information security, White stated “we can’t do enough in this sector.”  White also highlighted the SEC’s continued focus on cyber security sweep examinations of broker-dealer and RIA firms. With the number of high profile cyber security incidents growing rapidly, it’s crucial that all investment advisory firms are taking information security threats seriously and working hard to implement the proper procedures, training, and protections.

Be sure to check out last week’s top RIA compliance news articles and check back next Friday for next week’s top articles!