Top RIA Compliance News Articles for the Week of September 24th, 2021

    1. Top securities frauds last year? Promissory notes, stocks and social media, NASAA says (Author – Chana Schoenberger, FinancialPlanning)

In this article, Chana Schoenberger discusses the findings from the NASAA’s 2021 annual report. NASAA reported that state regulators launched 5,501 new investigations in 2020, for a total of 8,073, leading to 2,202 enforcement actions last year. Most enforcement actions were associated with promissory notes, stocks and equities, internet and social media, real estate, commodities and precious metals. Due to the pandemic, many enforcement cases have not yet reached the courts, which will have an impact on the number of cases in 2022. 

Chris DiTata, Vice President and General Counsel of RIA in a Box emphasizes the importance of keeping updated compliance manuals by not only “subscribing to compliance newsletters, and reading state-level and NASAA press releases to keep up with regulatory updates”, but also “focus on emerging problems, such as implementing a client trusted-contact form to fight fraud against seniors, or training staff and clients to recognize cybersecurity risks.” 

    2. Financial firms fail under securities rule to tell investors clearly how they’re paid (Author – Lynnley Browning, FinancialPlanning)

Firms were required to submit the client relationship summary disclosure known as Form CRS to current and prospective investors in spring of 2020. This disclosure was intended to provide clarity to investors on several matters, including fiduciary duty and conflicts of interest. Industry organizations have expressed concern that Form CRS instead causes investors confusion about the difference between brokers and investment advisers, as well as who is held to fiduciary standards. Firms have also been found to have contradictory statements in their Form CRS and other detailed disclosure documents. The article also mentions a Wall Street report, which determined that around 20% of advisory firms and brokerages failed to detail employees with legal or disciplinary incidents on file.

    3. Delaying DOL fiduciary rule would give small RIAs time to comply (Author – Mark Schoeff Jr., InvestmentNews)

Last week, The DOL received several requests to push back the compliance date for the Fiduciary Rule in order to give firms more time to prepare. The rule is currently scheduled to be enforced by December 20th, 2021. Financial lobbyists specifically asked for a temporary enforcement policy of six-month to a year extension, which allows advisers to receive prohibited compensation if they follow impartial conduct standards.

Industry experts have expressed that smaller firms, in particular, would benefit from the compliance date delay, as they may lack the resources to comply by December. The article also points out that if the DOL moves forward with the December compliance date, then firms may be hesitant to comply due to the uncertainty of what rules associated with fiduciary duty will come next. 

    4. SEC Proposes New Disclosures on Asset Managers’ Proxy Votes (Author – Bernice Napach, Think Advisor)

Bernice Napach provides an overview of the SEC’s newly proposed rule, which requires asset managers to disclose how they vote on shareholder proxies and corporate executive compensation. Furthermore, fund companies will be mandated to categorize each voting matter by type, so investors can identify those votes that interest them and compare voting records of asset managers. SEC Chairman Gary Gensler has voiced his support for the rule, saying “this proposal will make it easier and more efficient for investors to get crucial information about proxy votes from funds.”

    5. Enforcement actions up in 2020 as state securities regulators pursued pandemic fraudsters (Author – Mark Schoeff Jr., InvestmentNews)

Mark Schoeff Jr. sheds light on the efforts state regulators have taken to combat financial exploitation and investment fraud. The NASAA 2021 annual report shows that state regulators provided a total of $306 million in restitution to harmed investors in 2020 and levied $42 million in fines. Industry experts discuss how regulators continued to work remotely, with proactive efforts to prevent scams associated with the pandemic.

The NASAA report indicated an uptick in scams related to cryptocurrencies and self-directed retirement accounts. One industry expert added that “fraudsters prey upon investors’ lack of knowledge about the lower level of protection in self-directed accounts compared to traditional IRAs.”

Don’t forget to check out last week’s top RIA compliance news articles that focus on systems to prevent financial exploitation of elderly, the Securities and Exchange Commission’s “SEC” top priorities, Form CRS, and the North American Securities Administrators Association “NASAA” upcoming regulatory focus areas.