RIA Compliance and Practice Management Blog

Top RIA Compliance News Articles for the Week of February 19th, 2021

Posted by RIA in a Box

Feb 26, 2021 3:56:31 PM

Top RIA compliance articles focus on New York registration rules, state regulators' subscription fee concerns, and e-communication regulatory risks.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 New York's latest registration rules, state regulators' concerns regarding RIA subscription fees, and increased regulatory risks that come with e-communications.

Here's our top investment adviser compliance articles for the week of February 19th, 2021:

How an RIA Firm Can Create a Culture of Compliance Checklist

           1. Latest Registration Rules in New York May Have Far-Reaching Impact (Author - Thomas D. Giachetti, ThinkAdvisor)

As of February 1st, 2021 investment advisor representatives ("IAR"s) of state registered and Securities and Exchange Commission ("SEC") registered firms are required to meet examination and registration requirements with the State of New York. Rules impact any IAR and/or solicitors in New York. Firm located in other states and additionally maintaining a New York office will also need to comply with the rule. There are some exceptions to those with five or fewer clients. In this article, Giachetti further overviews definitions and the requirements for SEC versus state registered IARs and solicitors. Also noteworthy, he discusses the inclusion of a books and records obligation form the rule requiring IARs to retain documentation supporting the designation of any client as an "accredited investor" or "qualified client." An implementation period allows a business to continue without approved registration until December 2, 2021 as long as their U4 is submitted on or before August 31st, 2021 requesting the IARs New York registration.

         2. State Regulators Probe Whether Investors Get Money's Worth From Subscription Fees (Author – Mark Schoeff Jr., InvestmentNews)

In this article, Mark Schoeff Jr. discusses the continued priority of state regulators expressing their concern for whether investors are getting aligned fee structures for the services they're being provided. Subscription fees have become increasingly popular, so regulators concern comes with a focus on providing guidance this sometime in 2021. They are also challenging assumptions around other business models as to not single out the subscription fee business model. They are taking into account assets under managements ("AUM") fees, hourly fees, and subscription fees. The added difficulty of assessing these different fee approaches will likely slow down state regulators providing guidance, but ultimately regulators want to ensure investors get what they are paying for.

       3. Regulatory Risks Escalate When Firms Fail to Record Video Conferences (Author – Robert Cruz, WealthManagement.com)

Robert Cruz, vice president of information governance at Smarsh, discusses the rise of video sessions in todays remote-work environment and the complexity for e-communications recordkeeping. In a 2020 Risk and Compliance Report conducted by Smarsh, 51% of respondents said they recently adopted communication tools in response to work form home mandate. Of the 83% of firms allowing conferencing tools, only 22% have established retention and oversight programs for that content. This suggests a compliance gap between policies and regulatory obligations. SEC recordkeeping requirements do not differentiate between platforms, meaning the rule is versatile and will allow for the evolution of technological communications and easily amended policies and procedures. If an advisor or employee uses a digital platform for business purposes, regulatory requirements should be followed. Additionally, it is the content, not the specific tool that determines the need for supervision. The importance for firms to acknowledge and implement policies and procedures will continue to be of importance for firms. 

         4. What the Biden Administration Might do on Financial Regulation (Author – Mark Schoeff Jr., InvestmentNews) 

Mark Shoeff Jr. overviews a recent webcast hosted by Investment News discussing SEC chair nominee Gary Gensler, his potential agenda, and other expected regulation to benefit investors and consumers under the Biden administration. Many topics in the webcast are discussed including: 1) revisions to Regulation Best Interest ("Reg BI"); 2) regulatory changes brought on by the GameStop short squeeze; 3) the regulation of subscription fees for investment advisors; 4) revisiting of the environmental, social, and governance ("ESG") and fiduciary rules; and 5) the impact on financial regulation from the Biden administration's focus on climate change.

        5. What's on Gary Gensler's To-Do List? (Author – Melanie Waddell, ThinkAdvisor)

This article discusses the anticipated issues incoming SEC chairman Gary Gensler will likely address. Noteworthy for RIAs, Reg BI awaits his attention. More specifically, the SEC's interpretation of fiduciary duties, a replacement for the name "Regulation Best Interest", and a rewrite of the Form CRS language. Jim Lundy, partner with Faegre Drinker in Chicago said in a recent webcast, the SEC will "enforce Reg BI. It’s a tool kit in enforcement’s arsenal … a disclosure-based rule that they can examine for and enforce. And it also is a rule that has a compliance obligation attached to it". Additionally, broadly aligned with Reg BI, the Labor Department's fiduciary prohibited transaction exemption ("PTE") went into effect on February 16, 2021. The trump-era PTE taking effect makes fixing Reg BI higher priority for the SEC.  

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Don't forget to check out last week's top RIA compliance news articles that focus on the Department of Labor's ("DOL's") new fiduciary rule, the foreseeable return of in-person conferences, and marketing and business development opportunities on Instagram.

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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