RIA Compliance and Practice Management Blog

Top RIA Compliance News Articles for the Week of August 26th, 2022

Posted by RIA in a Box

Sep 2, 2022 2:42:40 PM

This weeks recap focuses on Securities and Exchange Commission (SEC) audits, the Department of Labor's Rollover Rule, and the SEC's recently drafted strategic plan.

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 common question from advisors preparing for Securities and Exchange Commission (SEC) audits, the Department of Labor's (DOL) Rollover Rule, and the SEC's recently drafted strategic plan.

Here are our top investment adviser compliance articles for the week of August 26th, 2022:

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    1. 5 questions advisers should ask to make SEC audits as seamless as possible (Author – Jason Vinsonhaler, InvestmentNews)

In this article, Jason Vinsonhaler, Director of Compliance for RIA in a Box, provides some examples of frequently asked questions from advisors anticipating an audit. The proportion of audited RIA companies grew from 10% in 2015 to 16% in 2021. The increase in SEC audits isn’t reflective of a desire for extra "gotcha" moments, it is to reach goals such as to guard retail traders, to detect and forestall violations of securities legal guidelines and guidelines, and to make sure RIA companies set up and preserve inner compliance applications. Vinsonhaler answers the following five questions frequently asked by advisors: 1) What is the best way to prepare our firm’s documents; 2) What should we expect during the initial interview; 3) How long should and interaction take; 4) What if we’re not offered and exit interview; 5) What happens if we get a deficiency letter? Read the article for further insights on these questions and creating a proactive culture of compliance.

    2. Small RIAs Likely Breaking New DOL Rollover Rule Without Knowing It: ERISA Lawyer (Author – Melanie Waddell, Think Advisor)

Small advisory firms could be inadvertently violating the more stringent rollover rules put in place by the DOL’s new fiduciary prohibited transaction exemption (PTE) 2020-02, Improving Investment Advice for Workers & Retirees, which became effective on Feb. 16. The rollover requirements went into effect July 1, requiring advisors to provide "retirement investors" with the specific reasons why a rollover or transfer of their retirement money is in the best interest of the retirement investor. In a recent interview, Fred Reish told ThinkAdvisor that "many small RIA firms (eg., 5 advisors or less … and perhaps a few more than that) are not aware of PTE 2020-02 or its requirements. That is partially the case because those firms don’t regularly do retirement plan work and are unaware that the DOL regulates them." Unlike most broker-dealers and large investment advisory firms, these small firms "do not receive information about DOL guidance and do not attend conferences with DOL programs. In addition, they usually do not have an in-house attorney or a dedicated compliance officer." Reish conclude that the DOL and the investment advisory industry "need to consider how to better educate small investment advisory firms, and need to have a way to bring those firms into compliance without penalties."

    3. SEC strategic plan emphasizes best-interest enforcement (Author – Mark Schoeff Jr., InvestmentNews)

In this article, Mark Schoeff Jr discusses the SEC’s priority to enforce a best-interest approach to investment advice over the next four years. The agency released a draft strategic plan earlier this week, including “protecting working families against fraud, manipulation, and misconduct”, reaching that goal through enforcement. The draft plan states, “Enforcement … means bringing cases that matter to all parts of the SEC’s missions – whether it be deceptive conduct by registered or private funds, offering or account frauds, insider trading, market manipulation, failures to act in retail customers’ best interest when making a recommendation, reporting violations, best execution and failure to act in accordance with the fiduciary duty, or another form of misconduct.” Kurt Gottschall, the former director of the SEC’s Denver office stated, “I expect to see a steady stream of enforcement actions related to conflicts and the duty of loyalty, but also a renewed focus on the duty of care.” The strategic draft plan is open for public comment.

   4. SEC Scrutinizing RIA Remote Workers For Possible Violations, Attorney Says (Author - Tracey Longo, Financial Advisor)

The SEC is focused on the regulatory risks associated with advisors with personnel working from home or other locations other than their firm's central office, securities attorney Richard L. Chen warned in a recent blog. The risks of the SEC zeroing in on ethics, Regulation Best Interest and failure to supervise violations “are particularly acute for advisers with multiple branch offices that utilize different operating procedures among the offices and advisers that supervise IARs who work remotely and manage their own books of business under the adviser’s umbrella,” Chen stated in a column that was sent to the Investment Adviser Association’s membership on Thursday. The agency began focusing on pandemic work-at-home and branch arrangements during the early days of Covid shutdowns and found numerous compliance deficiencies during exams of advisors with multiple branch offices. Chen said the SEC is concentrating on violations that the agency found during its sweep exams of 40 RIAs in 2020, including the following: 1) failure to oversee of portfolio management practices, including Regulation Best Interest and suitability of investments, improper trading, allocation of investment opportunities, and handling of trade errors; 2) failure to identify and manage conflicts of interest; 3) failure to supervise fee billing practices; 4) failure to effectively enforce RIA’s codes of ethics; 5) identification and supervision of personnel with disciplinary histories; 6) oversight of advertising practices; 7) violations of the custody rule.

   5. State regulators warn real money can be lost in fake world (Author – Mark Schoeff Jr., InvestmentNews)

In this article, Mark Schoeff Jr discusses the metaverse, an online immersive environment created by augmented reality technology that allows people to live and interact as they would in real life via avatars, and the risk for financial rip-offs causing real harm. The North American Securities Administrators Association (NASAA) cautions that real fraudsters lurk within virtual reality where there is no financial regulation. Metaverse denizens can invest in virtual real estate, non-fungible tokens and businesses operation in the virtual realm. Melanie Senter Lubin, Maryland securities commissioner and NASAA president, said in a statement, “we see the same old financial scams simply dressing in new clothes and offering to investors in the metaverse … Investors need to be war of any investment that is promising unrealistic returns with minimal risk.” NASAA says simply don’t talk investment within the metaverse.

Don't Miss Out on the ComplyConnect Conference & Expo

Don't forget to check out last week's top RIA compliance news articles that focuses on the SEC's marketing rule, the DOL's fiduciary rule, and environmental, social and governance (ESG) disclosures.

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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