Top RIA Compliance News Articles for the Week of October 21, 2017

1. SEC Task Force Targets Retail Investor Fraud at the Adviser Level (Author- Mark Schoeff Jr., InvestmentNews)

“A new Securities and Exchange Commission enforcement initiative will target retail investor harm that occurs when clients work with investment advisers, an SEC official said on Thursday,” reports Schoeff. Two main targets include issues with inadequate fee disclosure and unsuitable product recommendations. The agency plans to use data analytics to help identify these problems. The job of this new group will not be to enforce, but to observe and report. Co-director of the SEC Division of Enforcement, Stephanie Avakian has said the task force is still hiring. Despite this, Avakian intends to get started with investigations quickly. This action comes on the spur of Chairman Jay Clayton’s concerns regarding retail investor fraud.

2. SEC Nominees Say Fiduciary Rule Isn’t Top Priority (Author- Melanie Waddell, ThinkAdvisor)

At a recent nomination hearing, two nominees for commissioners of the SEC, Hester Peirce and Robert Jackson left out the fiduciary rule as a priority. When asked about it directly though, some concerns were expressed. Jackson wants the SEC to have a large role in crafting the rule, rather than the DOL, while Peirce lamented the confusion the current rule is causing. Peirce listed her priorities as FINRA oversight, market structure, and cybersecurity, the last of which Jackson agrees. Another of his is the Dodd-Frank act, which still has unfinished parts, along with law enforcement.

3. Interesting Angles on the DOL’s Fiduciary Rule #67 (Author- Fred Reish, FredReish.com)

Fred Reish informs that the deadline to comply with the final exemptions under BICE will likely be pushed back to at least July 1, 2019. The extra time allows the DOL and SEC to better coordinate on new fiduciary rules. Contentious items include the very definitions of “recommendations” and “fiduciary advice”. Part of the problem is that pieces of the rule, such as prudence and loyalty duties, require action by Congress, not the SEC or DOL. Another is that some amendments only effect IRAs, while others apply to ERISA plans.

4. SEC Names Driscoll Head of Exam Unit (Author – Melanie Waddell, ThinkAdvisor)

Since January, Pete Driscoll has served as acting Head of the SEC’s Exam unit, the Office of Compliance Inspections and Examinations (“OCIE”). He has now officially been given the role. Chairman Jay Clayton expressed happiness with his choice, with Driscoll having 15 years under his belt in the industry. Driscoll plans to overhaul exams to make them more efficient and less broad. His history includes being OCIE’s chief risk and strategy officer, then managing executive. His experience also includes time at Ernst and Young LLP.

5. Mitigating Conflicts of Interest in Compensation (Author- Blaine F. Aikin, InvestmentNews)
   

Blaine Aikin writes that one of the key challenges of the DOL fiduciary rule relates to compensation. On one side are advisors who charge level fees, and on the other side, others that receive variable compensation and commissions. While the SEC regulates compensation in non-retirement retail space, the DOL handles the retirement side. The very idea of compensation is a conflict of interest with the client, Aikin argues. “The basic conflict associated with simply getting paid is mitigated by the adviser receiving no more than reasonable compensation. That obligation is already consistent across fiduciary laws and regulations,” he says. He believes these conflicts are increased when things like commission are involved. 

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, recent custody guidance, and the decline in broker dealers over the last 15 years. Be sure to check back next Friday for next week’s top articles!