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's ("SEC") Regulation Best Interest Rule ("Reg BI"), including Form ADV Part 3 ("Form CRS"), the SEC's upcoming compliance seminar, and new data privacy regulation in California.
Here's our top investment adviser compliance articles for the week of February 21st, 2020:
1. SEC To Hold Compliance Seminar For Financial Advisors (Author- Jaqueline Sergeant, Financial Advisor Magazine)
The SEC will hold its compliance outreach program’s national seminar for financial advisors on Tuesday, April 21st at 8:30 am at the SEC’s headquarters in Washington DC. According to Jaqueline Sargeant, “Speakers will include SEC Chairman Jay Clayton, senior leadership from the OCIE, IM and AMU and industry representatives. The program will cover topics such as program priorities in 2020, investment adviser standard of conduct and related disclosures, issues regarding conflicts of interest, certain regulatory hot topics, and topics specific to investment companies and investment advisers to private funds, the SEC said.” While in-person attendance is limited to 500 people, a live webcast will be available.
According to Kenneth Corbin, a common Form ADV mistake that financial advisors commonly make is the failing to actively update the Form ADV as changes occur at their firms. “Yet planners need to view Form ADV as a living document which must be periodically scrutinized and updated. The same is true for the FINRA-required U4 form, say compliance experts,” Corbin states. Compliance experts offer their advice on when a firm should be updating their ADV’s and share personal experiences of client confusion related to the Form ADV updating and distribution.
As mandated by the SEC, the Form CRS should be a concise, two-page document written in “plain English.” As the initial June 30th filing deadline for the form approaches, advisory firms are finding challenges in both brevity and balancing “plain English” with proper disclosure when creating their Form CRS. According to Patrick Donachie, Todd Pouliot, an investment advisor representative at Gateway Financial states, “Plain English is one thing, but disclosing actual value is difficult, and I don’t think the consumer will be easily aware of the discrepancy between clarity and plain English. Describing complexity does not equal clarity.” Industry experts offer their advice on creating the Form CRS and tips for maintain a concise, yet complete document.
While the RegBI rule is undergoing legal challenges, Melanie Waddell emphasizes that both investment advisors and broker-dealers still must be prepared for the rule to go into effect on June 30th.” While it is suggested that there may be some flexibility to allow firms to tweak their compliance programs to properly implement RegBI, the SEC still expects to see that the firm is attempting to comply with all aspect of Reg BI. Among those requirements is Form CRS, which is posing challenges for dual registrants. Waddell also presents additional SEC focus areas for 2020 including the sweep of 403(b) sales to teachers.
Effective on January 1st, 2020, the California Consumer Privacy Act (CCPA) now requires applicable companies to provide consumers more transparency into the use of their data. According to Thomas Giachetti, “It prevents companies from using personal information in ways that you aren’t aware of, for example, in tracking your geolocation and from making a profit selling your data to other companies without your permission.” Giachetti walks through California’s data privacy law, which RIA firms it is applicable to, and how to maintain compliance with the law.
Don't forget to check out last week's top RIA compliance news articles focusing on RIA in a Box's new open application programming interface ("API"), continuing education requirements for investment adviser representatives ("IARs"), and the shifting regulatory landscape.