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 focus on a new risk alert from the Securities and Exchange Commission ("SEC") related to employee supervision, how to plan for the new Form CRS, and the growing risk posed to client data from cyber breaches. Check back each week for the latest list of top stories.
Here's our top investment adviser compliance articles for the week of July 19th, 2019.
1. RIAs failed to supervise employees who had disciplinary history: SEC (Author- Kenneth Corbin, Financial Planning)
As a result of more than 50 focused examinations conducted in 2017, the Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) has issued a new risk alert. Moving forward, the SEC examination staff will contunue to focus on supervision, disclosures, and conflicts of interest. The risk alert states, “The staff observed that many advisors did not adopt and implement compliance policies and procedures that address the risks associated with hiring and employing individuals with prior disciplinary histories.”
2. RIAs Fail to Vet, Disclose Advisors’ Discipline History: SEC (Author- Melanie Waddell, ThinkAdvisor)
Melanie Waddell breaks down the SEC's newly published risk alert concerning the 50 exams involving an firms employing individuals with prior disciplinary history. Waddell writes the two main focuses of the risk alert relate to disclosure of conflicts and compliance failures. Waddell states, “Office of Compliance Inspections and Examinations (“OICE”) staff observed that nearly half of the disclosure-related deficiencies of the advisors examined were due to the firms providing inadequate information regarding disciplinary events. For instance, advisors omitted material disclosures regarding disciplinary histories of certain supervised persons or the advisor itself.” She adds, “Areas of inconsistent compliance practices most frequently cited by the staff involved those addressing commissions, fees, and expenses.”
Even with the assumed date of June 30, 2020 for Regulation Best Interest (“Reg BI”) and Form CRS to take effect, it would be wise to start putting together the information your firm will need for the initial Form CRS submission. The document has a 2 page limit and must cover all 5 required topics. A firm can also take advantage of layering their disclosure with the use of hyperlinks to include pieces of additional information such as “fee schedules, conflict disclosures, the firm’s narrative brochure required by Part 2A of Form ADV, or other regulatory disclosures.”
4. Vendors need to be held to a higher standard on privacy (Author- Sheryl Rowling, InvestmentNews)
Sheryl Rowling discusses the ever-growing risk to client data and how cyber breaches are happening more and more often. With the use of third-party vendors, remote access and the many different internet platforms, you can never be too careful. Rowling states, “As advisers, we must be informed about the policies, procedures and culture of every person and entity that has access to client data. In fact, I believe it is our fiduciary duty.” Rowling further cities a recent New York Times series on privacy which notes “platforms are under no obligation to protect user privacy. They are free to directly monetize the information they gather by selling it to the highest bidder.”
5. RIAs on a 5-Year Growth Tear: Schwab (Author- Jeff Berman, ThinkAdvisor)
Charles Schwab has released their 2019 RIA Benchmarking Study and gives us a look at the main business priorities for RIA firms and what to expect in the industry. Jeff Berman breaks down the findings, “The main business priorities of RIA firms this year are acquiring new clients, leveraging technology, including customer relationship management (CRM) systems to improve productivity, and enhancing strategic planning and execution”. This study is comprised of self-reported data that was collected between January and March of this year across 1,310 firms that custody their assets with Schwab. According to the study, “RIA firms are actively seeking talent, with 71% of them reporting they hired staff in 2018 and 42% recruiting from rival RIAs”.
Don't forget to check out last week's top RIA compliance news articles focusing on top compliance concerns, Form CRS, alternative investment due diligence, and the SEC's share-class focus.