RIA Compliance and Practice Management Blog

Top RIA Compliance News Articles for the Week of July 31st, 2020

Posted by RIA in a Box

Aug 7, 2020 4:26:16 PM

Top_Compliance_Articles_of_the_week-17Each 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 upcoming changes to the Securities and Exchange Commission's ("SEC") advertising rule, how the financial industry is increasing their spend on cybersecurity, and whether or not work from home will be the new normal for advisors. Here's our top investment adviser compliance articles for the week of July 31st, 2020:

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          1. 'Next Steps' for Advertising Rule Coming: SEC Official (Author - Melanie Waddell,  ThinkAdvisor)

Dalia Blass, director of the SEC's Division of Investment Management has announced plans to make changes to the advertising and solicitation rule for investment advisors. The rule, which is a part of the investment Advisors Act of 1940, has come under scrutiny before but no changes have been made since the implementation. Since early March, the agency has been discussing and processing the feedback they had received about the rule and what advertising now means to advisors and firms today. Blass explained that “when you look at the community that the ad rule covers, it’s an incredibly diverse community of advisors”, which has made rewriting the rule even more challenging.

2. Financial services' cybersecurity spending jumps 15%, survey finds (Author - Yalman Onaran, Financial Planning) 

Deliotte and the Financial Services Information Sharing and Analysis Center’s (“FS-ISAC”) 2020 survey has found that “big banks and other financial services firms are spending 15% more this year to defend computer networks from cyber criminals”. As a reflection of the 15% increase in cybersecurity spending this year, the average spending per employee has been $2,691 this year compared to $2,337 in 2019. The FS-ISAC stated that “attacks trying to trick bank employees into clicking malicious links jumped in the first quarter, with criminals attempting to take advantage of fear and confusion caused by the coronavirus pandemic.”

         3. State Regulators Seek New Model that Jibes with SEC Rules –  (Author - Tracey Longo, Financial Advisor Magazine)

Within the wealth management services industry, there are two contenders that have dominated the industry: registered investment advisors and brokers. The difference between the two can often cause great confusion between consumers. Registered investment advisors have focused on how they differentiate themselves from brokers by the way they are regulated and operate. RIAs are legally subject to abide by the “fiduciary standard” which requires them to put their client’s interest ahead of theirs. Brokers have not had to abide by that same “fiduciary standard” rather they have had to meet a less protective “suitability standard” which requires them to “ recommend investments suitable for their clients while considering any personal client information that could be relevant in making their recommendations.” It is important for consumers of financial advice to understand the difference between the two and the guidelines that each follow.

         4. FINRA Nods to Work From Home as the New Normal - Are Advisors Ready? (Author - Christopher Robbins, Financial Advisor Magazine)

Christopher Robbins discusses the rippling effect COVID-19 has had on the financial industry’s work environment and how the current work from home situation may be for good. In response to the work from home shift, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 20-16, which provides guidance for advisors and firms alike. Robbins explains, “FINRA’s guidelines included: how to transition to a remote environment, maintain supervision in a work environment, and preserving compliance for the archiving of all customer communications.”

           5. Navigating the New Reg BI World (Author - Michael J. Nathanson, Financial Advisor Magazine

The State securities regulators have recently proposed a new law that would enforce state investment advisors and reps to meet the SEC standards. The North American Association of Securities Administrators ("NASAA") said in its new proposal that “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 advisors’ abilities to fulfill their fiduciary duties to clients.” Broker-dealers with registered investment advisories, and RIAs themselves, that do business in multiple states will be required to customize their compliance practices based off each individual state’s regulations. NASAA has reiterated that firms should not rely on their Reg BI materials or any other generic compliance plans. Advisors will need to pay close attention to the development of this proposed law to remain compliant, as it also requires advisors to disclose their business model and create supporting customer deliverables.

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Don't forget to check out last week's top RIA compliance news articles that focus on warnings from the SEC regarding Form CRS shortcomings, the SEC's newly created Event and Emerging Risks Examination Team ("EERT"), and a roundtable for Form CRS issues.

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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