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 recap focuses on new rules to watch from the SEC, the top frequently asked wealth management questions, recent SEC charges and the future of AUM fees.
Here are our top investment adviser compliance articles as of August 11, 2023:
24 new rules and proposals to watch from the SEC and other regulators (Author – Tobias Salinger, Financial Planning)
Regulations from the SEC and other agencies are poised to impact financial advisers and wealth management firms across multiple aspects of their operations. A recent report by COMPLY highlights the impending influence of new rules and guidelines on these companies. The abundance of forthcoming regulations is likened to an oncoming bus by COMPLY’s Chief Regulatory Officer John Gebauer. Industry professionals stress the importance of adapting to these changes swiftly. Notably active regulatory periods have led to increased expenses for both starting registered investment advisers (RIAs) and maintaining compliance upkeep. Key concerns encompass ESG initiatives, predictive analytics, SEC custody rule alterations, cybersecurity, RIA outsourcing and private fund management requirements.
Sending a message: SEC provides yet another warning on electronic communications with $289M settlement (Author – Dan Shaw, Financial Planning)
Financial advisers aiming to evade penalties must consider enhanced scrutiny of employee communications, notably on platforms like WhatsApp. This week, the Securities and Exchange Commission (SEC) accused brokerages of inadequate oversight on employee WhatsApp use for client communication, dating back to 2019. Regulatory fines highlight the significance of strong recordkeeping policies and employee training. Cataldo stresses the challenge of balancing personal and business discussions on these platforms. SEC’s penalties underscore the necessity for stricter compliance efforts at the top level.
“The takeaway from these cases is that they were so egregious and they were so widespread that the SEC didn’t believe there was a reasonable compliance effort going on,” said Max Mejiborsky, the vice president of compliance services at the regulatory consultant COMPLY. “The SEC thought these firms either didn’t bother to inquire, or didn’t pay enough attention, or didn’t provide sufficient training.”
The SEC’s New AI Plan Expands Reg BI — and More (Author – Melanie Waddell, Think Advisor)
Industry experts are analyzing the SEC’s plan addressing conflicts in the use of artificial intelligence (AI) and predictive analytics by broker-dealers and advisers. The plan, passed in July, aims to manage conflicts tied to predictive data analytics during investor interactions. Concerns arise over the plan’s scope, potentially covering a broad range of technologies beyond AI. Critics suggest the proposal could be an indirect expansion of Regulation Best Interest (Reg BI) and impose additional compliance beyond Reg BI and fiduciary duty. SEC Chairman Gary Gensler believes the plan safeguards investors, but concerns remain about its application.
Are AUM fees heading toward extinction? (Author – Jeff Benjamin, InvestmentNews)
The financial planning industry has largely shifted from commissions to asset-based fees, with over 90% of registered investment advisors (RIAs) charging these fees, which are often set around 1%. Despite this trend, RIAs are increasingly embracing various fee models to attract and retain clients. A recent report indicates that 77% of SEC-registered RIAs offer fixed fees, 62% hourly fees, and 4% commissions. Some experts anticipate a changing landscape, with a focus on value-based fees rather than asset-based ones. Fee diversity and innovative models may become more common to accommodate changing client needs and preferences.
Answers to the most frequently asked wealth management compliance questions (Author – Dan Shaw, Financial Planning)
With increasing complexity in advisory industry regulations, consultants are being sought out for compliance assistance. RIA in a Box now COMPLY, a renowned compliance software and services provider, has identified the most frequently asked regulatory topics by advisers. Leading the list are queries about whether firms need SEC registration, state registration or both. As regulatory challenges mount, advisers are urged to seek expert advice, not only for registration but also other compliance issues. Consultants play a crucial role, particularly for smaller firms without dedicated compliance officers.
Check out our previous round up, which focused on two new SEC proposed rules, an explanation of the SEC’s RIA Code of Ethics rule, how advisers are utilizing AI and the impact of social media on investing.