What’s the latest news in the world of regulatory compliance? Welcome to our biweekly recap, where we are giving you our 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 a roadmap for SEC examinations, reactions to the DOL’s work on a new fiduciary rule, implications of SEC rulemaking, NASAA’s Exam Validity Extension Program and challenges faced by breakaway RIAs.
Here are our top investment adviser compliance articles as of Sept. 8, 2023:
SEC provides road map for investment advisory firm examinations (Author – Mark Schoeff Jr., Investment News)
The SEC has provided investment advisers with detailed insight into its examination process through a recent risk alert. This unprecedented transparency outlines how the SEC selects firms for examination, the areas of focus during probes and document requests. The agency targets firms for examination based on risk characteristics, business activities, conflicts of interest and more. Additionally, tips, complaints, referrals or staff interest can trigger examinations. The risk alert includes an attachment listing the information and documents typically requested. This transparency is seen as a roadmap for advisers to ensure compliance and could help the SEC conduct more examinations in the future.
Lawmakers Tell DOL to Cease Work on New Fiduciary Rule (Author – Melanie Waddell, Think Advisor)
Top lawmakers from the Senate Health, Education, Labor, and Pensions (HELP) Committee and the House Education and the Workforce Committee have called on Acting Labor Secretary Julie Su to halt further action on a new fiduciary rule. They oppose the Department of Labor’s ongoing efforts to redefine the fiduciary under Section 3(21) of the Employee Retirement Income Security Act, citing the department’s inconsistent positions over the past two years. These changing interpretations have caused confusion and unnecessary compliance expenses as well as instability for retirement plans and savers.
Implications of the SEC rulemaking agenda (Author – Karen Barr, Investment News)
The SEC’s rapid rulemaking agenda will have far-reaching consequences for investment advisers, investors and markets. In just over 18 months, the SEC has proposed or finalized over a dozen major rules impacting investment advisers. This aggressive pace will require advisers to implement complex rules within 28 months, resulting in significant changes to business practices and regulatory upheaval. The SEC’s approach deviates from the principles-based approach of the Investment Advisers Act, potentially leading to inconsistent and duplicative requirements. For instance, advisers may need to renegotiate agreements with service providers multiple times due to disjointed rulemaking. The SEC is also proposing rules on predictive analytics, which some view as unnecessary given existing regulatory obligations. The Investment Adviser Association calls for a holistic review and reasonable implementation timelines.
Breaking Away to an RIA: Opportunities and Obstacles (Author – Ali Hibbs, Wealth Management)
In 2022, over 600 advisers and $320 billion in client assets left wirehouses for other wealth management models, indicating a growing trend. Independent RIAs added nearly 850 advisers, while hybrid RIAs gained over $140 billion in assets. This shift towards independence began after the 2008 financial crisis when wirehouses acquired regional broker/dealers. Additonally, around this time, partnership platforms provided an easier path for small advisers to go independent.
“It’s no longer the trailblazers or innovators making the leap from wirehouse to the independence,” agreed Fusion Financial Partners CEO Mike Papedis. “It’s like that old saying, ‘success feeds success.’ They have peers and colleagues and friends that have done it and saw that success, so then they’re ready to take the same jump.”
NASAA launches program letting advisors maintain licenses longer while out of industry (Author – Mark Schoeff Jr., Investment News)
New rules from FINRA and state securities regulators extend the grace period for retaining industry licenses from two to five years, allowing advisers more flexibility. The North American Securities Administrators Association (NASAA) has launched the Exam Validity Extension Program (EVEP) to help advisers enroll in extended leave. State-registered advisers can sign up for EVEP through their Financial Professional Gateway accounts and extend their Series 63 exam qualification. A $35 annual fee and continuing education requirements apply. NASAA plans to roll out a similar program for the Series 65 exam later. The initiative aligns state regulations with self-regulatory organization rules, offering advisers more options and easing recruitment challenges in the industry.
Check out our previous round up, which focused on the impact of the SEC’s private fund adviser rule, the SEC’s first Marketing Rule action and the extended comment period for the proposed Safeguarding Advisory Client Assets rule.