RIA Compliance and Practice Management Blog

Top RIA compliance news articles for the week of Feb. 24, 2023

Posted by RIA in a Box

Mar 3, 2023 8:54:00 AM

RIA outsourcing ruleEach Friday, 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 financial advisers attitudes toward wealthtech, the Securities and Exchange Commission’s (SEC) custody rule and the SEC’s 2023 examination plans.

Here are our top investment adviser compliance articles for the week of Feb. 24, 2023:

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Advisers are ready to make it rain on wealthtech (Author – Justin L. Mack, Financial Planning)

According to a recent survey by financial technology firm Apex Clearing, financial advisers are poised to ramp up their use of wealthtech in 2023. The survey found that 72% of financial advisers plan to increase their use of technology platforms over the next two years, and 93% of advisers believe that wealthtech will be important to their firms' success in the coming years. The survey also revealed that cybersecurity concerns remain a top priority for advisers when selecting technology providers, with 76% citing cybersecurity as a key factor in their decision-making process. Additionally, the survey found that advisers are increasingly interested in offering crypto-related investment products to their clients, with 47% expressing interest in doing so.

7 wealth management takeaways from Arizent’s latest technology research (Author – Justin L. Mack, Financial Planning)

A recent study conducted by Arizent, a business information company, found that while advisers are embracing technology to improve their practices, they still face challenges such as security and compliance concerns. The key takeaways from the study include the importance of technology adoption in improving client relationships, the need for increased investment in technology infrastructure and the challenge of managing technology vendors. Additionally, the study found that artificial intelligence and machine learning are becoming increasingly important tools for advisers, and that there is a growing interest in sustainable investing and environmental, social and governance (ESG) strategies among advisers and clients. Finally, the study highlights the importance of creating a technology-focused culture within advisory firms in order to fully realize the benefits of technology adoption.

SEC proposed custody amendments could cut investment advisers out of crypto (Author – Tarter Krinsky & Drogin, LLP, JD Supra)

On Feb. 15, 2023, the SEC proposed amendments to Section 206(4)-2 of the Investment Advisers Act of 1940 to include customer assets beyond just “funds and securities” to more generally include “any client assets.”

The proposed amendment, if passed, would broaden the application of the current investment adviser custody rule to all asset classes, including crypto assets. This would require investment advisers trading in crypto assets to comply with the custody requirements of the Investment Advisers Act of 1940, which would require depositing crypto assets with a qualified custodian, something that centralized crypto exchanges do not currently have.

The current business model of centralized crypto exchanges does not meet the qualified custodial standard and investment advisers cannot rely on them as qualified custodians. The proposed amendments would ban investment advisers trading customer crypto assets on centralized crypto exchanges as they exist today, unless the exchanges evolve to allow off-exchange settlement through a third-party intermediary.

More advisers would have custody under new SEC plan. Here's how. (Author – Melanie Waddell, ThinkAdviser)

The SEC’s proposed amendments to Section 206(4)-2 of the Investment Advisers Act of 1940 could mean that more investment advisers would have custody under the new rules. “The new Safeguarding Rule pulls in more advisors because those with “discretionary investment authority” will be considered to have custody, “even if the investment adviser does not have the authority to cause the client’s custodian to transfer assets to third parties,” Mike McGrath, K&L Gates’ Asset Management and Investment Funds partner based in Boston, added in an email to ThinkAdvisor.” The rule change could increase the number of advisers with custody to 90%.

SEC to Increase Onsite Advisor Exams (Author – Melanie Waddell, ThinkAdvisor)

The SEC announced its plans to increase onsite exams of advisers within the next six months. This move follows the SEC's examination of approximately 15% of RIAs in 2022, which Deputy Director of the SEC's Division of Examinations Natasha Greiner noted was accomplished despite continued growth in the number of RIAs, which now exceeds 15,500.

“Going forward, as the industry continues to grow and change, maintaining our coverage ratio can only be achieved with sustained investments in human capital and technology resources,” Greiner said.

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Don't forget to check out last week's top RIA compliance news articles recapping the SEC's concern about the potential risks of stablecoins, financial advisers’ attitudes toward the market at the start of 2023, Wealth Enhancement Group CEO Jeff Dekko’s insights on what drives RIA growth, the effect of a Florida ruling on rollover fiduciary requirements and an overview of the SECURE 2.0 Act.

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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