RIA Compliance and Practice Management Blog

The SEC’s focus on Regulation Best Interest (Reg BI) rule puts pressure on investment firms

Posted by RIA in a Box

Jan 4, 2023 11:25:35 AM

investment adviser compliance

As an investment adviser, the rapid-fire pace of news and updates is enough to keep you up at night. Recently, experts from RIA in a Box and InvestorCOM sat down to discuss the emerging challenges in the industry, specifically highlighting the Securities and Exchange Commission’s (SEC) and the Department of Labor’s (DOL) focus on Regulation Best Interest (Reg BI). This greater focus from regulators means investment firms have to give greater attention to doing their due diligence in the interest of their clients. What can you do to comply with the increased regulatory pressure? Let’s dive in.

 

View the Compliance and RegTech Analysis

How investment firms are responding to pressure to comply with the Reg BI rule

  1. Regulators’ focus on Reg BI presents opportunities and challenges for firms.

It’s almost too easy for advisory firms to get into a rhythm and simply stay the course. And although the products they offer might be excellent, without a thorough analysis, it’s impossible for firms to be certain their products best serve their clients. Pressure from regulators presents firms with the opportunity to analyze the competitiveness and quality of the products they offer to determine if they really do suit their clients’ best interests. Firms can then determine how to most efficiently serve their clients, maintain their trust and support their future as a firm.

  1. The biggest challenges for investment advisory firms are disclosure, documentation and the retrospective review process.

In June 2022, survey results indicated 23% of participating investment firms thought disclosure, documentation and the retrospective review process were their greatest challenges. A number which climbed to 31% in August 2022, and then 48% in November 2022.

  1. Most investment advisers conduct rollovers manually.

According to a survey conducted in June 2022, 47% of surveyed advisers were conducting rollovers manually. This number moved to 49% in August 2022 and 55% in November 2022.

  1. Advisers indicate time and resources are the main factors as to why they have not adopted technology.

In June 2022, 44% of survey respondents indicated if they had more time and resources, they might use technology as part of their compliance program. A number which lowered to 22% in August 2022 and 21% in November 2022.

      5. Manual auditing is the most popular method of conducting retrospective reviews.

57% of survey participants indicated they use manual processes to conduct their retrospective reviews. 25% said they use in-house developed data intelligence and 18% said they use outside compliance/legal experts.

      6. Advisers indicated rollover recommendations and comparison of alternatives as challenging areas for them.

32% of survey respondents said rollover recommendations were challenging, while 32% said assessing reasonable available alternatives were challenging. 26% of respondents indicated Form CRS delivery was challenging for them.

How to respond to pressure from regulators to comply with Reg BI

It’s clear many RIA firms are feeling the pressure. However, equipped with the right resources, firms can ensure due diligence in complying with all Reg BI requirements:

  • Introduce technology to your firm’s compliance program.
Automating your firm’s processes can increase efficiency and ensure your firm doesn’t miss any red flags which could become compliance violations.
  • Enlist the assistance of a compliance consultant.
Sometimes having an external view of your compliance program can help your firm see things differently – and for the better! Your firm can lean on the expertise of a professional who can not only spot gaps in your program, but help you correct them with reasonable solutions.

Download our top 10 best practices for RIA firms in 2023 infographic here

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

Topics: RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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