RIA Compliance and Practice Management Blog

Top RIA Compliance News Articles for the Week of August 19th, 2022

Posted by RIA in a Box

Aug 26, 2022 1:34:47 PM

This week's recap focuses on the Securities and Exchange Commission's ("SEC") examination priorities, cryptocurrency, and a recent SEC bulletin emphasizing serving clients' best interest.

Each week, we are 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 Securities and Exchange Commission’s (SEC) marketing rule, the Department of Labor's (DOL) fiduciary rule, and environmental, social and governance (ESG) disclosures.

Here are our top investment adviser compliance articles for the week of August 19th, 2022:

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    1. Who Owns Your Investment Performance? (Author – Diana Britton, Wealth Management)

The SEC's new marketing rule, which takes effect in November 2022, largely centers on the fact that investment advisors can now use testimonials and endorsements in advertising—under certain conditions. In the 430-page final rule is a section addressing the debate—who “owns” an advisor’s investment performance, and are they allowed to market themselves or their new firm by touting that track record? The rule outlines four requirements investment advisors must meet in order to use the investment performance in previous firms in marketing and advertising materials. If the primary decision-maker for an investment strategy leaves, the firm loses the strategy’s performance record. But the rule doesn’t make clear whether that track record can be ported over to the portfolio manager’s new firm. The SEC’s marketing rule also includes amendments to its books and records rule, which now requires an advisor to retain all the records to support the performance presented. Read the article further for specifics on the four requirements, a case study, and guidance on maintaining records.

    2. DOL Moving Closer To Blanket Fiduciary Rule, Attorney Says (Author – Tracey Longo, Financial Advisor)

Live in July, the DOL investment advice package, already provides as fiduciary giving any rollover advice an advisor or financial professional to investors regarding their retirement accounts. Edging advisors closer to a blanket fiduciary rule would return the DOL to its 2016 fiduciary rule, which was overturned in court. Complicating things further, the DOL faces two lawsuits seeking to toss out the investment advice rule. The American Securities Association and the Federation of Americans for Consumer Choice, a trade group that represents insurance and annuities businesses, each filed suits in February to set aside the DOL’s attempt to define fiduciary investment advice. Both lawsuits assert that the agency has overstepped its legal and regulatory authority. Both lawsuits allege that the DOL’s ruling that first-time advice to transfer retirement assets out of a federally regulated plan or IRA can constitute fiduciary advice oversteps the DOL’s authority. Read Tracey Longo's article further for insights from Brad Campbell, partner at the Faegre Drinker law firm.

    3. BlackRock says SEC proposal on ESG disclosures will backfire (Author – Bloomberg News, InvestmentNews)

BlackRock Inc. is warning U.S, regulators that of new guidelines to battle greenwashing by fund managers might create more confusion and make buyers assume holdings are extra socially acutely aware that they are. In a letter this week to the Securities and Alternate Fee, they said it might mislead buyers about how ESG actually issues when managers choose shares and bonds. Mutual fund and pension managers together with BlackRock have been criticized by conservative teams for placing an excessive amount of emphasis on ESG because it penalizes sure sectors, reminiscent of oil and gasoline. Though BlackRock helps the SEC’s general push to make clear asset managers’ methods, the asset supervisor stated the plan to require new disclosures for funds that simply think about ESG standards amongst many different elements might muddle the situation. Such disclosures in a prospectus “would overemphasize the significance of integration, with the unintended consequence of greenwashing,” BlackRock’s Paul Bodnar, international head of sustainable investing, and Elizabeth Kent, managing director within the international public coverage group, stated. 

   4. ‘ESG integration’ a sticking point in SEC proposals (Author - Emile Hallez, Investment News)

In this article, Emile Hallez, discusses recent comment letters in which fund companies and industry groups ask for more clarity from SEC proposals. The proposals, which cover fund names and disclosures for advisers and investment providers, could in some cases discourage the use of ESG factors or even lead to more greenwashing, commenters wrote in their letters to the SEC. The fund names proposal would update current 2001 regulation to prohibit companies from putting a badge on products that don’t use factors in their name as primary ones in their investment processes, including ESG. Raising some compliance concern; active managers could generally have difficulty validating their compliance programs, and a proposed change to apply the 80% rule to at all times from time of purchase could have consequences for portfolio holdings. Lance Dial, partner at Morgan Lewis, also said “The concerns raised there are that that shift would require more compliance resources, but could make funds do forced divestment, particularly in bad markets. The article further provides clarity on industry wishes and support. 

   5. How Small RIAs Can Grow While Staying in Control (Author – Tom Prescott, Think Advisor)

This article provides guidance from Tom Prescott on leveraging brand identification, information flow and client data as forefront components of a growing independent registered investment advisor firm. An advisor must maintain the ability to define his or her practice and service offerings, and own the flow of information that results from day-to-day interaction with clients while growing their firm. The choices facing an RIA or an IAR with $300 million (or less) in assets are familiar. Aside from joining an existing RIA, there are the traditional bank, independent broker-dealer and conventional wire-house channels. Look into the article further as Prescott discusses benefits and shortcomings of various business approaches and platforms for compliance and back office processes. 

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Don't forget to check out last week's top RIA compliance news articles that focus on investment advisers role in preventing and detecting elder abuse, RIA in a Box's compliance partnership with LinkedIn, environmental, social, and governance (ESG) regulations, and a recent regulatory sweep over single stock ETFs

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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