RIA Compliance and Practice Management Blog

Top RIA Compliance News Articles for the Week of March 22, 2019

Posted by RIA in a Box

Mar 29, 2019 3:08:42 PM

SEC focus on share class selection for RIA firms

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 progress of Regulation Best Interest ("Reg BI") and share class selection. Check back each week for the latest list of top stories.

Here's our top investment adviser compliance articles for the week of March 22nd, 2019:

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1. SEC Not Finished with Scrutiny of Self-Reporting Firms (Author - Jessica Mathews, FinancialPlanning)

Last February, the Securities and Exchange Commission ("SEC") announced the self-reporting initiative regarding 12b-1 fees in mutual fund share classes. "In the self-reporting initiative, the SEC focused attention on whether firms were adequately disclosing conflicts of interest and recommending the lowest-priced share classes to retail clients." After 79 firms self-reported, Jessica Matthews reports that the SEC is seeking additional information about revenue-sharing payments from some of those same firms. As defined by the SEC, revenue-sharing payments are payments “made by a clearing firm as a result of investments by Advisory Clients in certain mutual funds and/or money market funds”.

2. Clayton says Disclosure Sufficiently Mitigates Some Conflicts Under Reg BI (Author- Mark Schoeff Jr., InvestmentNews)

According to Jay Clayton, chairman of the SEC, the Regulation Best Interest ("Reg BI") proposal would require brokers to identify and mitigate conflicts of interest when working with investors. However, for many others this does not provide enough explanation or context on how to meet these requirements moving forward. Matthew Wolniewicz, president of Fi360, said “I don’t think disclosure is the answer to solving the fiduciary question. Does Reg BI achieve a true fiduciary standard? Not in its current state”.

3. Reg BI Readiness Questioned on All Fronts: SEC Commissioners, Trade Groups, Legislators (Author - Melanie Waddell, ThinkAdvisor)

As the Reg BI rule moves toward finalization, many are still skeptical. Commissioner Robert Jackson said he cannot support the passing of Reg BI because “the cost-benefit analysis performed by the SEC thus far is subpar”. Jackson further explained, “if the economic analysis ‘is not up to snuff, you’re basically giving the market a call option on striking down the rule. The whole point of Reg BI is to enter the space and settle the debate about the duties owed to American investors. And to the degree that industry retains a call option to get it struck down in the D.C. Circuit, I don’t think that goal has been achieved”.

 4. Do Consumers Really Understand the Difference Between Brokers and Advisors? (Author- Tracey Longo, Financial Advisor Magazine)

The SEC Disclosure Effectiveness Testing Act, written by Rep. Sean Casten, aims at understanding the difference between a broker dealer and a registered investment adviser (“RIA”). Even with disclosures in place, many believe investors still have a hard time understanding the key differences between brokers and RIAs. Casten said, “the important thing here is to do it right and provide retail investors with the information they need. It is clear there is more work to be done, and that is why this bill is so important.”

5. Fiduciary Duty and the Choice Between Active and Passive (Author- Blaine F. Aikin, InvestmentNews)

Within the last decade, passive investing has been on the upswing. Aikin writes, “the two most compelling reasons for passive investing are low cost and the ability to more predictably earn returns that are aligned to asset class benchmarks. The approach is firmly grounded in the principles of market efficiency and modern portfolio theory.” There seems to be an overall shift in the approach to investing, as “academics and regulators have started to explore possible implications” regarding the shift “for market efficiency and stability”.

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Don't forget to check out last week's top RIA compliance news articles focusing on cybersecurity, compliance as the most important back office consideration, and technology selection. Be sure to check back next Friday for next week’s top articles! 

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.

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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