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. Check back each week for the latest list of top stories.
Here’s our top investment adviser compliance articles for the week of September 3, 2016:
- Industry, Adviser Groups Raise Concerns About SEC’s Business Continuity Proposal (Author- Mark Schoeff Jr., InvestmentNews)
Recently, the Securities and Exchange Commission (SEC) proposed a new rule that would mandate that SEC-registered RIA firms adopt and implement written continuity plans that go into effect should there be a severe incident such as a natural disaster, cyberattack, or death of a firm principal. In this article, Mark Schoeff Jr. notes that a number of industry groups have expressed the view that “making advisers liable for fraud if they lack a plan is the wrong way to achieve investor protection goals.” Robert Grohowski, general counsel at the Investment Adviser Association, claims a new anti-fraud rule is “unnecessary and could become counterproductive.” Instead, Schoeff Jr. writes that Grohowski and others, “would rather have the SEC issue guidance on business continuity under existing compliance rules rather than create another regulation.”
- Third-Party Adviser Exam Rule May Come Before Election: Ex-SEC Official (Author- Melanie Waddell, ThinkAdvisor)
Norm Champ, former SEC Investment Management Division Director, believes that SEC chairwoman Mary Jo White is moving forward with plans to require SEC-registered RIA firms to be audited by third parties. Champ is critical of the plan for third-party audits and believes that such exams will be “costly for advisors and their clients and could have unintended consequences.” According to Champ, the agency has been working on a “five-pronged agenda” and has already moved ahead with two of the measures. The third party audits would actually be a sixth measure.
- Do Retainers Beat AUM-Based Fees Under Fiduciary Rule? (Author- Liz Skinner, InvestmentNews)
The Department of Labor (DOL) fiduciary rule recently introduced the new concept of a “level fee advisor.” Traditionally, fee-only advisors that might look to take advantage of this new exemption have charged a fee based on the percentage of assets under management (AUM). However, in recent years there has been increased adoption of flat fee or retainer type fee models. Now as Liz Skinner reports, a new report argues that the retainer fee model presents ” fewer feasible conflicts” compared to the traditional AUM model and is better suited to comply with the new level-fee exemption. However, as Skinner notes, other advisors billing under the traditional AUM model argue that “their model is easier for clients to understand and aligns with the goals of the financial adviser and investors.” Expect this debate to continue!
- New Reporting Requirements for SMAs (Author- Karen DeMasters, Financial Advisor)
Starting in October 2017, RIA firms registered with the SEC that utilize separately managed accounts will be required to report additional information on the Form ADV. SEC chairwoman Mary Jo White notes that these new requirements will help the agency “have a better understanding of the risk profile of each advisor and the industry as a whole.” The reporting requirements will vary depending on the level of the firm’s separately managed account (SMA) assets. Firms with $10 billion or more in SMA assets will have the largest number of additional details to disclose twice a year in a mid-year and annual filing.
- If an Advisor Gets Dementia, What Happens to His or Her Clients? (Author- Danielle Andrus,ThinkAdvisor)
Back to the earlier theme of the SEC’s new business continuity rule proposal, Danielle Andrus takes a look at the sometimes awkward topic of how an advisor can prepare for the scenario during which his or her own mental capacity begins to diminish. With advisors working longer and the fact that “one in nine people 65 or older has Alzheimer’s” and the likelihood of this only increases with age, advisors need to be thinking about preparing for this unfortunate event. A number of potential ideas are discussed including one advisor that “has a back-up plan with another local advisor who can take over if her successor isn’t able to.”
Don’t forget to check out last week’s top RIA compliance news articles on the DOL fiduciary rule and new Form ADV disclosure requirements. Be sure to check back next Friday for next week’s top articles!