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 a new rule model proposed by state regulators to align with the Securities and Exchange Commission's ("SEC") rules, RIA in a Box's Path to Independence partnership, and the short Department of Labor ("DOL") fiduciary rule comment period.
Here's our top investment adviser compliance articles for the week of July 3rd, 2020:
1. State Regulators Propose New Model to Align with SEC Rules (Author - Tracey Longo, Financial Advisor Magazine)
Tracey Longo discusses the new model law recently proposed by state securities regulators that calls for all state investment advisors “to bring their policies, procedures and disclosures up to Securities and Exchange Commission (“SEC”) standards. The North American Association of Securities Administrators (“NASAA”) expanded on the new rule, stating “the rules would require each RIA policy and procedure to be customized to each state’s advisor requirements, with a code of ethics that aligns closely with SEC rules, to enhance investment advisers’ abilities to fulfill their fiduciary duties to clients”. Advisors will also be required to disclose their business model and create supporting customer deliverables for the first time. State regulators will also require each firm to appoint a chief compliance officer ("CCO") who will have the authority to enforce the policies and procedures and have asked that all comments on the proposal be submitted by August 1.
2. SEC rule resets regulatory landscape (Author - Dale Brown, InvestmentNews)
With the successful implementation of Regulation Best Interest (“Reg BI”), a precedent has been set for state officials and other regulatory agencies for how to create policies and regulation moving forward. The article discusses both the Department of Labor (“DOL”) and the states’ responses to Reg BI and how “the SEC’s landmark regulation should serve as a new ‘true north’ for state officials and other regulatory agencies that are continuing to push forward with their own ‘best interest’ standards”.
3. It's Time to Start Your Own RIA Firm. Here's What to Look Out For, According to Industry Executives (Author - Christopher Friedmann, thewealthadvisor.com)
A few weeks ago RIA in a Box introduced “The Path to Independence: How to Build Your Technology Stack” during a webinar with several industry executives, providing a unique opportunity to those looking to start their own RIA firm. Aaron Klein, CEO of Riskalyze, pointed out that for advisors looking to go independent “need to really think about the unique value proposition you’re going to try to deliver to your clients, and you need to be working backwards from there”. Even amidst the COVID-19 pandemic, there is ample opportunity to start off on your own in the wealth management industry. GJ King, president of RIA in a Box, stated that during the last financial crisis, “Our industry saw a record number of new RIA firms created,” adding that “early signs indicate it’s possible we may see a similar theme emerge out of this challenging time as well.”
4. Almost 2,000 Financial Advisory Firms Received PPP Loans, but a Full Count Remains Unclear (Author - Patrick Donachie, Wealth Management)
The Treasury Department has recently released data that shows almost 2,000 retail financial service companies received Paycheck Protection Program (PPP) loans for economic relief amidst the COVID-19 pandemic. There have been some discrepancies with the data that was released, as some small businesses were not clear on the application form regarding specific codes used to highlight which industry they operate in. The code 523930 is “for investment advice, which is defined as businesses that are primarily engaged in providing customized investment advice to clients on a fee basis, but do not have the authority to execute trades,” according to the president’s Office of Management and Budget. The discrepancies in the data come about when we see the list of loan recipients that used the 523930 code. Some of the businesses included in the list are air conditioning companies, roadside BBQ joints and floral design companies. This goes to show that the exact number of financial advisory firms that received the PPP loans remains unclear.
5. Short DOL Fiduciary Rule Comment Period Faces Criticism (Author - Melanie Waddell, ThinkAdvisor)
The United States Labor Department has recently cut the minimum 60-day comment period for the recently proposed exemption for investment advice fiduciaries in half to just 30-days. The Department of Labor is now facing a ton of criticism from lawmakers and public interest groups regarding this comment period being cut in half to just 30 days. Lawmakers are outraged that the American public only has 30 days to thoroughly review and respond to the 123-page proposed rule which also requires familiarity with the 770-page Reg BI. Lawmakers stated to Labor Secretary Eugene Scalia, that “the DOL owes it to the public to take the time to meaningfully engage with people about their concerns rather than rushing through a rule that would seriously damage the retirement security of people across the country.” The DOL has been receiving letters pleading for an extension on the comment period and is now tasked with combating the criticism.
Don't forget to check out last week's top RIA compliance news articles that focus on the SECs Reg BI rule, a risk alert issued by the SEC for private fund advisers, and the rising interest from brokers in transitioning to the RIA model.