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's") new ad rule, top compliance issues in 2021, and deregulating private markets.
Here's our top investment adviser compliance articles for the week of January 22nd, 2021:
The new Investment Adviser Marketing Rule, released by the SEC, will allow advisors to better market themselves in the 21st century. Former SEC Chairman, Jay Clayton, said the SEC "recognizes the increasing use of electronic media and mobile communications" in a December 2020 statement. The released rule will now allow for advisors to use testimonials and endorsements, bringing the ability to better engage on social media, share client experiences and use specific examples to illustrate their investment process. Its important to note, with the rule comes compliance considerations. Amendments to Form ADV will be required. Advisors need to disclose additional information about their use of certain types of advertisements and advertising practices. The SEC will look for this in examinations pending the 18-month compliance period allowing a sufficient transition period to consult with SEC staff on compliance with the Ad Rule. Additionally, the books and records rule will reflect the marketing rule, requiring an archiving process for all advertisements a firm creates for content distribution, along with any needed disclosures.
2. 5 Ways to Address This Year's Top Compliance Issues (Author – Thomas D. Giachetti, ThinkAdvisor)
As the SEC continues to conduct aggressive audits, it's important to have a strategy in place to approach potential audits. This article discusses five ways to remain guarded within your firm; 1) tactfully push back on findings you believe to be incorrect, unjust or unfair; 2) be proactive by considering a mock audit to pinpoint exam issues; 3) clear disclosures for potential conflict(s); 4) document everything and be prepared to easily access all documents; 5) educate employees on compliance with regular shorter meetings scheduled in addition to an annual compliance meeting. Utilize these ways to build and maintain your compliance program.
3. Regulators, Investor Advocates Warn Against Deregulating Private Markets (Author – Mark Schoeff Jr., InvestmentNews)
Mark Schoeff Jr. discusses the letter penned by the North American Securities Administrators Association (“NASAA”) and several other financial groups to the Biden administration, voicing their concerns and how they expect this new administration to move forward while protecting the everyday investor. The main concern of these organizations is that as the new administration works to pass its $1.9 trillion coronavirus relief bill, reducing regulations on the private market will become a hot topic of compromise when the bill is introduced in Congress. The letter reads, “in developing its policy response, your Administration should commit, from Day 1, to giving at least equal consideration and attention to the expectations and needs of retail investors who, because of the expansion of private markets, are increasingly directly exposed to the risks of these markets.”
4. How Advisors Can Use Client Testimonials Under New SEC Rule (Author – Jeff Berman, FinancialPlanning)
Under the new SEC Ad Rule, advisors can use client testimonials, but they should proceed with caution. Following rule requirements is critical and there are potential trip ups. Notably, the theory of "entanglement and adoption" comes into play if an advisor gets too involved in the process and starts to control content. Advisors can actually request a testimonial from a client, get a favorable review and then advertise that review to generate business. Be cautious of negative reviews, as there is an obligation to share them as well. Additionally, it is critical to include thorough disclosures anywhere reviews are posted as well as in the ADV Part 1 and ADV Part 2A. The article discusses de minimis compensations, gross and net performance, as well as additional rule specifics to consider.
5. 7 Real-World Lessons We Learned on Succession Planning (Author - Mindy Diamond, WealthManagement)
In this podcast, Mindy and Louis Diamond discuss their succession planning journey offering perspectives from both ends. The mother-son pair recently experienced succession moves in their firm, and have key insights from the experience. Overall when succession planning, the goal is to focus on future-proofing a firm through developing a strategic guide that focuses on a sustainable scale and continual growth for the firms vision. They discuss seven lessons they learned throughout the journey: 1) find the right fit for the next generation; 2) test run a succession choice by delegating key projects or working with key team members; 3) planning and preparation is important while leveraging well defined goals; 4) communicate changes in advance with an open and inclusive process involving the whole team; 5) respect roles and boundaries; 6) don't micromanage 7) be open minded.
Don't forget to check out last week's top RIA compliance news articles that focus on pros and cons of the Securities and Exchange Commission's new ad rule, expected enforcement shift under new SEC leadership, and 2021 technology trends for advisors.