RIA Compliance and Practice Management Blog

Top RIA Compliance News Articles for the Week of April 12th, 2019

Posted by RIA in a Box

Apr 19, 2019 9:00:55 AM

SEC Regulation S-P risk alert for RIA firms

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. This week's recap focuses on the new Securities and Exchange Commission ("SEC") Regulation S-P risk alert, New Jersey's new fiduciary rule, and Regulation Best Interest ("Reg BI"). Check back each week for the latest list of top stories.

Here's our top investment adviser compliance articles for the week of April 12th, 2019

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1. SEC Fires Off Warning on Privacy Regulation (Author- Melanie Waddell, ThinkAdvisor)

On Tuesday, the SEC Office of Compliance Inspections and Examinations ("OCIE") issued a risk alert cautioning advisors to reevaluate their policies and procedures related to Regulation S-P ("Reg S-P"). Furthermore, the agency details a list of common deficiencies during exams which violate Reg S-P which include Initial Privacy Notices, Annual Privacy Notices, and Opt-Out Notices to their customers. In addition, OCIE has observed that both advisors and broker-dealers are not properly complying with the Safeguards Rule. This risk alert also follows recent SEC enforcement action related to the Safeguards Rule.

2. Trump administration puts potential new hurdle in path of Regulation Best Interest (Author- Mark Schoeff Jr., InvestmentNews)

On April 11th, 2019, the Trump Administration’s Office of Management and Budget ("OMB") issued a memo applying to both executive branch and independent agencies, such as the SEC, to comply with the Congressional Review Act when releasing new regulation.  According to Mark Schoeff Jr., “Under the process outlined in the memo, agencies would have to submit upcoming rules to the Office of Information and Regulatory Affairs at least 30 days before they are publicly released so that the office can determine whether they will have an economic impact of $100 million or more.” As Reg BI is likely to be deemed a major rule, the memo could potentially push back the release of the final rule. However, some Industry experts don’t see the OMB memo as a roadblock and say it shouldn’t have much of an effect on the rule's timeline.

3. New Jersey Moves To Impose Fiduciary Rule on Brokers (Author- Christopher Robbins, Financial Advisor)

New Jersey’s Bureau of Securities announced on Monday that it will enact regulation which will place a fiduciary standard on anyone who provides investment recommendations including brokers. According to Christopher Robbins, “’The bureau believes that the proposed new rule is necessary to ensure that persons involved in the securities markets are uniformly held to a high standard in their dealings with the general public and is necessary to ensure the welfare of New Jersey investors,’ wrote the agency in proposing the rule.” The agency also commented that the prior lack of uniformity caused confusion for investors and the new rule will establish a standard. The final rule could go into effect as early as 90 days after its proposal.

 4. Op Ed: The SEC Needs to Keep a Decades-Old Promise to the Investing Public (Author- Scott MacKillop, Wealth Management)

Scott MacKillop argues that the Investment Advisors Act of 1940 has already made a clear distinction between the duties of a broker and investment adviser and established a standard applicable to anyone who provides advice. Over time, however, the lines between an investment adviser and a broker have become blurred, as brokers have started to portray themselves closer to RIAs by using titles such as “financial advisor,” and investors have relied on them for ongoing advice. MacKillop suggests that this violates the Investment Advisors Act of 1940. Ultimately, MacKillop argues, “The brokerage industry loves Regulation Best Interest. It fuzzes up the competitive advantage RIAs have had for years by leaving brokers looking like they are subject to the same standard as RIAs.”

5. SEC Cracks Down on ETF Names That Could Be Misleading Investors (Author- Vildana Hajric and Reade Pickert, Bloomberg)

The SEC is becoming more vigilant of exchange traded fund ("ETF") names due to the dramatic increase in ETF assets between 2014 and 2018. Names are not only used as a way to help the client understand the type of fund, but also from a marketing perspective to grab investors’ attention. According to Vildand Hajric and Reade Pickert, “Issuers are prohibited from using ‘materially deceptive or misleading’ names under the Investment Company Act of 1940. The SEC adopted Rule 35d-1 in 2001 -- known as the Names Rule -- to further define this, and require that funds ensure at least 80 percent of assets are in the type of investments suggested by their monikers.”

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Don't forget to check out last week's top RIA compliance news articles focusing on the SEC exam rate, Reg BI progress, and the pros and cons of mandatory arbitration. Be sure to check back next Friday for next week’s top articles! 


Topics: RIA Operations, RIA Compliance, RIA Technology

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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