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's ("SEC") latest risk alert on the compliance rule, E-signature rules, the Share Class Initiative. Here's our top investment adviser compliance articles for the week of November 13th, 2020:
1. SEC Warns Compliance Advisers to Step Up Compliance Systems (Author – Mark Schoeff Jr., InvestmentNews)
The SEC issued a risk alert on Thursday, November 18, 2020. The alert addressed the deficiencies related to the compliance rule and concerns about inadequate compliance programs and Chief Compliance Officers (“CCOs”) being spread too thin. The alert states “staff observed advisers that did not devote adequate resources, such as information technology, staff and training, to their compliance programs.” Schoeff shares it was additionally found that CCOs are not able to do their jobs effectively without “adequate independence, standing and authority.” These things are especially important when making critical decisions for their firm’s regulatory compliance and keeping pace with operational growth by adding compliance staff and information technology. In the article Schoeff further discusses the alert and the focuses on compliance for RIA firms.
Earlier this week the SEC adopted rules and rule amendments affecting e-signatures for signatories. The Rule 302(b) of Regulation S-T, Securities Act, Exchange Act and Investment Company Act were among the amended. As firms have shifted to remote work, in person meetings have diminished, proving difficulties with signatory rules. These amendments adopt requiring electronic filing and service of documents in administrative proceedings. Previously each signatory was required to manually sign a signature page or document before or at the time of the electronic filing. There will be an initial 90-day phase in period with a required compliance date of April 12, 2021.
3. Clayton Defend Share Class Initiative in Senate Hearing (Author – Patrick Donachie, WealthManagement.com)
As SEC Chair Jay Clayton will be stepping down at the end of the year, he had what is likely his last testimony before the Senate Committee on Banking, Housing and Urban affairs. Among the issues discussed, the commission’s Share Class Selection Disclosure Initiative was defended by Clayton. The share class initiative has been denounced by some since individuals and firms can be subject to oversight and unknowns. Clayton’s defense although, is having clarity for each case in advance of enforcement decisions. He upholds “the enforcement division has the belief to be on the right side of the law in these enforcement decisions.” Other topics addressed in the hearing were expanding access to exempt securities offerings and the SECs revisions to the shareholder proposal process.
4. Human Capital: IAA’s Karen Barr on SEC Rules Nearing the Finish Line (Author – Melanie Waddell, Think Advisor)
Investment Adviser Association’s (“IAA”) President and CEO Karen Barr joins Melanie Waddell in a podcast discussing investment advisor growth and changes to the SEC’s custody rule. Barr shares how those in the wealth industry see the value of fiduciary advice with an increase of 501 advisors registering with the SEC in 2020. She continues with small firms being the backbone of the industry with 57% of firms with 10 or less employees and 87% with 50 or less. Waddell and Barr then discuss the SECs custody rule and how the rule needs updated to make it easier for advisers to comply and effectively protect advisers. There is now a dedicated team that is looking at the rule and can help make it common sense. Other rules and regulations discussed on the podcast include modernizing the advertising rule, and E-delivery documents with more firms working from home, and Reg BI.
5. Here’s Why Financial Advisors Need to Amp Up Their Digital Marketing (Author – Michael S. Fischer, Think Advisor)
This year has accelerated the need for financial advisors to embrace digital marketing. Firms are working from home and leaving the client to firm relationship affected from Covid-19 in many ways. A survey from eMoney Advisor dives into how evolving expectations should influence firms marketing plans to attract new clients. Participants in the survey show they are looking for personalized, insightful and educational content. Forty-two percent of respondents said they started the process to find an advisor by searching online. Firms should ensure they have a professional looking website and leverage social media to execute digital marketing and communications with clients.
Don't forget to check out last week's top RIA compliance news articles that focus on the risk alert on multi branch office risks, the recent RIA industry growth, and how beneficial social media can be for advisors.