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 ("SEC") issuing a sweep of public companies who have applied for or received a Paycheck Protection Program ("PPP") loan, the Financial Industry Regulatory Authority's ("FINRA") lack of guidance on branch examinations during COVID-19, and the steps to take to create a succession plan.
Here's our top investment adviser compliance articles for the week of May 8th, 2020:
Melanie Waddell discusses the SEC's recent move to sweep public companies who have received a PPP loan due to the COVID-19 pandemic. According to one of Waddell’s sources, “The agency’s enforcement division in Washington is making voluntary inquiries regarding information that would demonstrate qualifications to receive a PPP loan, including the impact of COVID-19 on the business, among other related document and information requests.” Advisors should not be surprised if any examiners from the SEC’S Office of Compliance Inspections and Examinations (“OCIE”) have questions about whether they have applied for and received a PPP loan.
2. SEC puts pressure on fee transparency in increasingly complex wrap accounts (Author - Mark Schoeff Jr., InvestmentNews)
According to a recent article by Mark Schoeff, the SEC plans to crack down on the level of transparency and messaging advisors provide to their clients concerning wrap fee accounts. Amy Lynch, president of FrontLine Compliance, explains, “The SEC knows that not every transaction in a wrap-fee program can be executed within the sponsor broker, as the range and complexity of financial products within the wrapper grows. This is an increasing phenomenon, which is the why the SEC is interested in ensuring firms have the proper disclosures in their wrap-fee accounts and in their marketing materials.”
3. Finra is Failing on Guidance for Post-Pandemic Branch Examinations (Author - Sander J. Ressler, Financial Advisor Magazine)
Throughout the changes and disruptions of the COVID-19 pandemic, the wealth management industry has worked hard to adapt and reassure clients. However, one area that has yet to be addressed is branch-office examinations, an annual or triennial examination required for firms by the Financial Industry Regulatory Authority (“FINRA”). Sander J. Ressler explains how these examinations “verify that branch offices are complying with basic requirements on maintaining documentation and disclosures”. Ressler also calls for FINRA to provide guidance on how to approach these exams, and suggests that FINRA allow firms “to consolidate their 2020 and 2021 branch examinations into one exam cycle to be done after social distancing eases and before the end of next year”.
4. Make These Moves to Set Up Your Own Succession Plan (Author- Mike Walters, WealthManagement)
According to a study by the Financial Planning Association (“FPA”) and Janus Henderson Investors, 73% of financial advisors report not having a formal succession plan in place, despite understanding the harm this could cause to themselves, their firm, and their clients. “After spending your entire career building a practice from the ground up, the last thing you want is for it to undergo a shaky transition period after you retire”, Mike Walters states. Walters goes on to explain the importance of succession planning and the steps to take to ensure you have a successful plan in place.
5. Lawyers slow to embrace Zoom for Finra arbitration hearings (Author - Mark Schoeff Jr., InvestmentNews)
In this unfamiliar time of social distancing and work from home, the courtroom process is struggling in many ways. Arbitration lawyers are reluctant to transition to Zoom or video conference, resulting in a delayed hearing. Lisa Braganca, owner of Braganca Law, suggests two reasons for the reluctance, “First, it’s much more difficult to read the body language of the arbitrators. When lawyers present a case, they’re always monitoring how adjudicators react to their argument. There’s constant adjustment. It’s a dynamic process”. Secondly, “It’s difficult to present documentary evidence in an effective way. We want to make sure that everyone is looking at the same part of the document at the same time”, Braganca states.
Don't forget to check out last week's top RIA compliance news articles focuses on the SEC's guidance on PPP loans, Reg BI deadline, and FINRA's and NASAA's online test-taking service.