Each week we’re 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 Department of Labor (“DOL”) fiduciary rule, NASAA’s release of summary statistics for state-registered RIA firms, and the resignation of Securities and Exchange Commission (“SEC”) Commissioner, Michael Piwowar. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of May 4, 2018:
- Interesting Angles on the DOL’s Fiduciary Rule #89 (Author- Fred Reish, FredReish.com)
With the recent developments in the legal system vacating the current DOL fiduciary rule, he DOL and Internal Revenue Service (“IRS”) have issued a temporary enforcement policy to assist with remaining rule uncertainty. Fred Reish writes, “While it is well-understood that the 5th Circuit threw out the expanded definition of fiduciary advice, it is not as well known that the 5th Circuit also vacated the exemptions that were associated with the fiduciary regulation. As a result of the loss of the exemptions, including the Best Interest Contract Exemption (BICE), many advisors (including their broker-dealers and RIAs) have inadvertently engaged in prohibited transactions during the time since the Fiduciary Rule first applied on June 9, 2017,” Reish explains. However, the temporary enforcement policy is only meant to be a stopgap while the SEC and DOL hash out potential new fiduciary guidelines.
- DOL Announces Temporary Enforcement Policy on Fiduciary Rule (Author- WealthManagement.com Staff, WealthManagement.com)
The DOL “will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted in the BIC Exemption and Principal Transactions Exemption, or treat such fiduciaries as violating the applicable prohibited transaction rules,” the staff quotes. Furthermore, “Of course, investment advice fiduciaries may also choose to rely upon other available exemptions to the extent applicable after the Fifth Circuit’s decision, but the Department will not treat an advisor’s failure to rely upon such other exemptions as resulting in a violation of the prohibited transaction rules if the advisor meets the terms of this enforcement policy.” After June 13th, the DOL can no longer appeal the 5th Circuit Court’s decision. RIA firms should be sure to familiarize themselves with the DOL’s impartial conduct standards.
- A Potential Deadlock at the SEC with Commissioner Piwowar’s Resignation (Author- Erich Reimer, Seeking Alpha)
The Republican SEC Commissioner, Michael Piwowar has announced his resignation as of July 7, 2018. He has been in the position for 5 years. Since out of 5, only 3 commissioners can be of one political party, some are anticipating headbutting between the remaining players, at least until the president nominates a successor. For the most part, partisan politics doesn’t play any part, as most votes and decisions are made based on “staff recommendations”. For larger issues, however, there can be more disagreement. The 2/2 party split is likely to go on for a while, as the presidential nominee confirmation process is expected to continue to be slow.
- NASAA Releases Snapshot of State Advisor Landscape, Including Top Exam Infractions (Author- Melanie Waddell, ThinkAdvisor)
“The North American Securities Administrators Association released its first annual report Monday, providing a snapshot of state-registered investment advisors, their top exam deficiencies — including cybersecurity-related infractions — and the priorities of state securities regulators,” Waddell begins. There are plenty of statistics available, one of which lists California as having the most state-registered advisors. And the top exam deficiency area? Books and records. Registration and fees are a couple of other leading deficiency categories. While cybersecurity-related deficiencies didn’t make the top 5, it did debut at #6. Among problems included in this category are lack of cybersecurity insurance, no IT consultant, and no testing for vulnerabilities.
- With DOL Rule Defeated, States May Step in with Own Fiduciary Rules (Author – Tracey Longo, Financial Advisor Magazine)
Tracey Longo writes, “A new survey from NASAA found that not one of the 96 broker-dealers questioned provided fiduciary level advice to investors doing IRA rollovers before the now-defunct U.S. Department of Labor fiduciary standard was introduced,” Longo reports. As discussed in our previous blogs, the SEC has introduced a potential “Regulation Best Interest” standard. In the meantime, Longo reports New York, Connecticut and New Jersey are working on legislation regarding fiduciary duty.
Don’t forget to check out last week’s top RIA compliance news articles on the SEC’s Share Class Selection Disclosure Initiative, the SEC’s proposed advice rule, and FINRA’s hybrid RIA oversight plans. 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.