Top RIA Compliance News Articles for the Week of October 27, 2017

1. The Cybersecurity Problem Requires Human Solutions (Author- Ryan W. Neal, InvestmentNews)

Though cybersecurity threats have been abundant lately, Ryan Neal is chagrined at most advisers’ lack of response. The North American Securities Administrators Association (“NASAA”) recently released its biannual report on investment adviser examinations and found nearly 600 deficiencies related to information security. Neal points out that NASAA released a Cybersecurity Checklist for Investment Advisers, and is trying to spur them to use it. While speaking to Frank Quinlan, “a counsel to law firm Newmeyer & Dillion who has a background in cybersecurity with the U.S. military,” advisers at least need to take the steps of reading the National Institutes of Standards and Technology’s guide on the fundamentals of small business information security, analyze their risks, and imagine the worse case scenario.

2. DOL Files Official Delay of Fiduciary Rule (Author- Melanie Waddell, ThinkAdvisor)

The DOL has filed a formal delay for the remaining components of the fiduciary rule for at least a span of a year and a half, Waddell reports. “The rule is titled 18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption; Class Exemption for Principal Transactions; PTE 84-24,” Waddell writes. She states Barbara Roper, the Consumer Federation of America’s director, doesn’t see this as a delay, but as an outright scrapping of the rule, of which she is a staunch supporter. The delay is seeing support however, from the National Association of Insurance and Financial Advisors; the Treasury Department; the Department of Labor itself; and the Securities and Exchanges Commission (“SEC”).

3. Interesting Angles on the DOL’s Fiduciary Rule #68 (Author- Fred Reish, FredReish.com)

Fred Reish begins by revisiting a 2013 FINRA regulation, Notice 13-45. His notes the notice focuses on “recommendations of distributions and rollovers”. He contends that the DOL is following the same path, only with firmer conviction. The SEC has also jumped in at this point, contributing to the ReTIRE examination initiative. The actions and regulations require that RIAs have extensive documentation and detailed processes for the aforementioned recommendations. The SEC will be investigating these during examinations. Reish further lays out items in bullet point format, and these include: “Recommendations to investors/retirees of inappropriate share classes”, and “supervision and compliance breakdowns”, to name just two.

4. Why a Truce on Broker Poaching Is Being Broken: QuickTake Q&A (Author – Neil Weinberg, Bloomberg News)

When a person’s favorite hairstylist leaves for a new salon, the clients usually follow. While not a perfect comparison, the same is generally true for financial advisors. While large institutions have tried to block this in the past, in 2004 an agreement was reached. “The Protocol for Broker Recruiting, allows advisers to change companies and woo former clients without legal blowback.” It has made the news recently that financial giant, Morgan Stanley is abandoning this armistice. They claim the agreement is now unfeasible, mostly due to loopholes and lawsuits. Some have suggested that the Protocol be updated, but it is a complex process, and has no official oversight.

5. RIA Momentum Pushes $55B to Indie Channel (Author- Tobias Salinger, FinancialPlanning.com)
   

Tobias Salinger writes that a new study released by Charles Schwab Advisor Services notes, “financial planners’ movement to independence is picking up steam, with new RIA registrations growing 75% over five years as increasingly large teams break away.”  As many advisors currently at wirehouses or independent broker dealers see the success their peers are experiencing when starting their own RIA firms, momentum may continue to accelerate. Salinger further notes. “Advisors from IBDs remain the biggest source of breakaways to Schwab, followed by wirehouses, regional brokerages, banks, institutional BDs, trusts and insurance companies. Schwab Advisor Services didn’t include advisors from IBDs’ hybrid RIA platforms in its study.”

Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule, the new SEC head of examinations, and a new SEC enforcement initiative. Be sure to check back next Friday for next week’s top articles!