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 cybersecurity, the Securities and Exchange Commission's ("SEC'") Regulation Best Interest Proposal ("Reg BI"), and advisor fee strategies. Check back each week for the latest list of top stories.
Here's our top investment adviser compliance articles for the week of February 1st, 2019:
At this year’s T3 advisor conference, Steven Ryder, president of True North Networks, presented on best practices for financial advisors to follow to minimize the risk of cyber attacks. The financial services industry continues to experience a high-level of security threats and advisors must take precaution to protect themselves and their clients. Among this list are practices like training your staff, securing your devices, password vulnerabilities, network monitoring, and more.
2. As SEC's Reg BI looms, states chart their own fiduciary path (Author- Kenneth Corbin, FinancialPlanning)
If not for another government shutdown, the SEC is expected to soon finalize its Regulation Best Interest proposal the first half of this year. Meanwhile, states are beginning to create legislation that would enact their own standards of conduct for both investment advisers and brokers. Nevada has been at the forefront of these discussions as earlier this year as proposed a rule "that dramatically expanded the definition of financial planner to include brokers and other types of advisors in the wealth management sector." This has sparked momentum in other states to come up with their own competing proposals to the SEC’s Reg BI proposal. Kenneth Corbin states, “’If the SEC finalizes its rule in its current form,’ Roper says, ‘and if one of the leading states survives the inevitable industry legal challenge, then I would definitely expect more states to follow this lead.’”
3. Number of Suspected Senior Scams Escalate, Government Says (Author - Karen Demasters, Financial Advisor)
It’s evident that the financial services sector is a high-target for fraud, but the U.S. Treasury Department reports that at the forefront of scams has been the elderly. With a 12% increase in financial abuse for the year, regulations such as the Senior Safe Act, are now being passed to protect senior citizens, advisors, and financial institutions from this abuse. As for advisors, they must be vigilant of telltale signs of a senior who might be at risk and be able to educate their families on what to look for.
Bob Veres shares his perspective on the obligations that the SEC’s proposed Reg BI rule would impose on broker dealers. At its face value, he concedes, it seems that the proposal would require brokers to act at all times in the best interest of their client, however, Veres says that is merely a “standard” without actually changing the true obligations a broker has. Furthermore, Veres explains how states like Nevada and New Jersey are beginning to take fiduciary matters into their own hands by drafting regulations that would hold brokers to the same fiduciary duties as any financial planner. Veres encourages this initiative by the states saying that, “The SEC seems to have finally crossed a red line in the minds of people who are in a position to see the damage that sales-disguised-as-advice can do to the consumers they have sworn to protect.”
Jeff Benjamin walks through recent research conducted by Eliza De Pardo, a management consultant for TD Ameritrade Institutional, on the effect of raising fees on client retention. De Pardo presented her findings on Thursday at TD’s annual LINC conference in San Diego. According to her findings, firms that raised their fees over the past few years had surprisingly better client retention rates compared to firms that did not. According to Jeff Benjamin, “’The key to raising fees, Ms. De Pardo explained, ‘is making sure clients understand the value that firms are providing, which can be difficult when fees are ‘bundled’ under an asset-based pricing model.’” However, from a regulatory perspective, its always important to remember that improper client fee billing remains a compliance focus area.
Don't forget to check out last week's top RIA compliance news articles on RIA vendor due dilligence, cybersecurity, and succession planning Be sure to check back next Friday for next week’s top articles!
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..