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 how COVID-19 has highlighted the importance of succession planning, updates on the Department of Labor's ("DOL") new Fiduciary Rule, and increased technology adoption during the pandemic. Here's our top investment adviser compliance articles for the week of August 21st, 2020:
1. Why You Should Stay Vigilant About Regulations During the Pandemic (Author - Thomas D. Giachetti, ThinkAdvisor)
As we move into the sixth month since the first shock waves of COVID-19 were felt, it more important than ever be aware of the ever-changing conditions and regulations. Thomas D. Giachetti, chairman of the Investment Management and Securities Practice Group of Stark & Stark, discusses how the pandemic has personally affected him and wants to remind advisors that regulators and the Securities and Exchange Commission (“SEC”) are not slowing down anytime soon. “SEC examinations continue at a seemingly aggressive pace. No, not on-site, but rather correspondence exams. Exams that can be protracted and go on for six months or more. And what is the SEC’s primary issue? How they can find a deficiency that will cause you to reimburse clients,” explains Giachetti.
2. COVID-19 emphasizes importance of succession plans (Author - Kathy Freeman, InvestmentNews)
The COVID-19 pandemic has really highlighted the importance of succession plans and brought focus to the long-term sustainability of wealth management firms. Due to the current uncertainties surrounding the pandemic many firms are looked at as being vulnerable. The pandemic has specifically exposed many deficiencies in terms of structural weaknesses, vulnerability, and transparency. Many firms are led by baby boomers who are starting to realize that their age plays a huge factor in their firms’ long-term sustainability and success, especially due to the fact COVID-19 impacts people over 60 at a higher rate. Clients and employees are asking CEOs difficult questions regarding what the future of the firm looks like, hence the importance of having an adequate succession plan. When crafting a succession plan it is important for the CEO to reflect on the past and the future to implement a plan that will align with your professional and personal goals. Another important step is to identify a candidate that you feel is best equipped to take of over your seat when the time comes. Whether that candidate is internal or external it is important to be on the same page and work together to ensure the firm is heading in the right direction. At the end of the day having a succession plan is extremely important in maximizing a firms value and setting it up for future success.
3. DOL Announces Hearing On Fiduciary Proposal After 'Considerable Interest' (Author - Tracey Longo, Financial Advisor Magazine)
The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor has recently announced that it will hold a public hearing regarding its controversial fiduciary proposal after receiving “considerable interest”. The EBSA has seen that there has been a lot of interest expressed regarding the proposed prohibited transaction exemption as well as comments from the public wanting a hearing to discuss further. According to EBSA the hearing is “to consider issues attendant to adopting a proposed prohibited transaction exemption on Improving Investment Advice for Workers and Retirees.” The hearing is scheduled to be held virtually on September 3rd at 9 am to provide an opportunity for the public to “present material factual issues that cannot be fully explored through written submission.”
Melanie Waddell details the back and forth over the new Department of Labor (“DOL”) Fiduciary Rule, with the DOL announcing last week that even though the comment period ended on August 8th, the department will be holding hearings over the new rule starting September 3rd. Many on Capitol Hill believe the rule needs additional amendments and clarification, including Senator Patty Murray, D-Wash., who is frustrated with the current pace at which the rule is moving forward.
5. RIAs Say They’re Emerging from the Pandemic Optimistic, But Changed (Author - Christopher Robbins, Financial Advisor Magazine)
According to TD Ameritrade’s 2020 RIA Sentiment Survey Mid-Year Update, even with the global pandemic and economic downturn, RIAs are thriving. The survey reports that RIAs are growing – 40% have reported increases in assets under management (“AUM”) and revenue, with an average AUM increase of 8.4% and an average revenue increase of 8.45%. A large area of growth has been in technology adoption as well, as advisors have had to turn to telecommunications to carry out duties and require a higher level of cybersecurity. The survey found that “84% of those surveyed are conducting video conferences with their clients. More than two-thirds of the respondents, 67%, reported video conferencing with their clients at least once a week. As social distancing restrictions are lifted, 56% of the respondents expect to continue their use of virtual meeting and video chat tools."
Don't forget to check out last week's top RIA compliance news articles that focus on the SEC's share-class crackdown, the overwhelming discovery of COVID-19 related fraud, and the biggest news in fintech from last month.