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 Securities and Exchange Commission ("SEC") amendments to the advertising and marketing rules, the recent SEC's recent risk alert on non-compliance with Rule13h-1, and firms' adoption of digital tools throughout the past year.
Here's our top investment adviser compliance articles for the week of December 11th, 2020:
The Securities and Exchange Commission ("SEC") tabled long awaited amendments to advertising and marketing rules during their meeting Wednesday. Among the anticipated changes were amendments to the Investment Advisers Act of 1940, to the Form ADV’s information about advisers marketing practices, and to books and records rules under the Advisers Act. These changes are highly anticipated as some have not been materially changed since 1961, dating them before the internet and other technological advances within the industry. There are currently 12,047 advisers who have at least one social media platform or website, an increase of 509 since last year. The SEC’s current rules make it difficult for firms to attract clients. The Investment Advisor Association ("IAA") says as its stands, “the advertising rule prohibits or restricts client testimonials, references to past specific profitable investment recommendations, and portfolio performance without substantial disclosure.”
2. SEC Exams Find B-D, RIA Violations of Large Trader Rule (Author – Mrinalini Krishna, Financial Advisor IQ)
The SEC issued a risk alert Wednesday stating during examinations, the Office of Compliance Inspections and Examinations ("OCIE") observed numerous instances of potential non-compliance with Rule13h-1 (“Rule") including where Large Traders may not have self-identified with the SEC and/or may not have filed their annual Form 13H as required by the Rule. Mrinalini Krishna discusses Rule 13h, the regulation, and the risk alert’s warnings for future examinations. Rule 13h of the Securities Exchange Act “obliges large traders to fill out a form with information about their business, regulatory status, affiliates, governance, and broker dealers where the Large Trader has an account.” The OCIE found in exams focused on the rule, non-compliance was found when firms didn’t self-identify or they did not file the required annual form. OCIE encourages registered advisers to thoroughly review, and amend their supervisory and compliance policies and procedures to ensure compliance with the rule when needed.
3. Adapt and Survive: 2020 Forces Adviser Embrace of Digital Tools (Author – InvestmentNews Content Strategy Studio, InvestmentNews)
New Research between Transamerica and Investments News Research shows 42% of advisers used digital marketing or technology for the first time this year and 88% expanded the use of at least one tool. Covid-19 and stay at home orders created a work from home environment, catalyzing many firm’s adoption of digital tools and technology to interact with clients. Among the tools are client facing portals, mobile messaging, firm website analytics, social media tools, and automated marketing emails. 65% of the surveyed firms and advisers plan to spend on digital tools in 2021.
James Poer discusses what will impact the wealth management industry as we enter 2021 in the coming weeks. The adoption of technology was accelerated in 2020 when financial professionals and their clients were forced out of their norms. Widespread digitization across the industry was seen through tools like Zoom and e-signatures. Looking into next year, Poer says “we expect the rapid adoption of technology to continue to accelerate and unleash a new wave of enhanced productivity.” Additionally the efficiencies learned and gained this year will unlikely be abandoned as professionals return to their offices. The pandemic has acted as a driving force to building better businesses through technology adoption.
In a report Thursday, the North American Securities Administrators Association ("NASAA") said its Covid-19 Enforcement Task Force has taken action to disrupt or deter 250 fraudulent schemes looking to profit from the pandemic. Lisa A. Hopkins, president of the NASAA, said “The objective of the task force is to proactively detect Covid-19-related threats to investors, including but not limited to fraudulent offerings, investment frauds and unregistered regulated activities, within the jurisdiction of NASAA member states and provinces, and to disrupt and deter those activities.” Over the year, 168 investment related, and 94 non-investment related schemes were rooted out. Among the many uncovered questionable offers were cryptocurrency, penny stocks, private placement offerings, initial coin offerings, and crowd funding schemes. The task force is also examining internet domain names linked to the pandemic, as two hundred thousand have been created since the beginning of 2020. The task force successfully raised awareness of pandemic fraudsters and the association will continue its enforcement work as the vaccination phase of the pandemic response shifts in 2021.
Don't forget to check out last week's top RIA compliance news articles that focus on Form CRS, and the SEC's modernization of advertising rules, and continuing education amendments.