RIA Compliance and Practice Management Blog

Top RIA Compliance News Articles for the Week of November 2, 2018

Posted by RIA in a Box

Nov 9, 2018 4:00:37 PM

SEC Form CRS finalized

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 how a Democratic House will impact investment advisers, the increase in RIA-related enforcement actions, and the Securities and Exchange Commission ("SEC") Regulation Best Interest ("Reg BI") proposal. Check back each week for the latest list of top stories.

Here's our top investment adviser compliance articles for the week of November 2, 2018:

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  1. SEC Report: Investors Like Form CRS But Don’t Understand It (Author- Diana Britton,

According to a recent article by Diane Britton, in addition to the investor roundtables held by the SEC to gather feedback on it's Reg BI rule, "industry groups and investor advocates have been calling for rigorous testing of the Customer Relationship Summary ("CRS"), a disclosure document that’s part of the proposal." Earlier this week, the SEC’s Office of the Investor Advocate in conjunction with RAND Corporation released a research report, "testing investors’ use of the four-page mockup form." Per the article, "the study included a survey of 1,800 American adults, as well as in-depth interviews with investors in Denver and Pittsburgh." Britton writes, "Responses to the survey portion were generally positive, with a majority of investors saying the form would help them make more informed decisions and that it helped them better understand key terms and conflicts of interest. But the interviews indicate that there were areas of misunderstanding and aspects of the document that need to be improved." To read the results in their entirety click here

  1. SEC’s Own Investor Committee Says Reg BI Needs Fiduciary Principles (Author - Tracey Longo, Financial Advisor Magazine)

"There’s no dearth of corrective criticism surrounding the Securities and Exchange Commission’s Regulation Best Interest proposal," Tracey Longo writes. The SEC's own Investor Advisory Committee ("IAC") recently approved "the release of an 8-page letter calling on the SEC to create explicit fiduciary principles for brokers." According to Longo's post, some of the following changes being requested by the IAC are to: "clarify the obligation of both brokers and investment advisors to act in customers’ best interests; and expand the best interest obligation to cover rollover recommendations and recommendations by dual registrant firms regarding account types." To read more about the changes the IAC is requesting from the SEC, click here

  1. Here's how a Democratic House will affect financial advisers (Author- Mark Schoeff Jr., InvestmentNews)

As a result of Tuesday's midterm elections, the Democrats gained control of the House, while Republicans maintained control of the Senate. Per Mark Schoeff Jr.'s recent article, "A Democratic takeover of the House isn't likely to influence the Securities and Exchange Commission's investment advice reform proposal despite one of the leading critics of the SEC's effort being poised to head the committee overseeing the agency." He continues to say, "with Democratic governors taking over in several states, there may be more momentum for fiduciary regulations in state houses." According to Rep. Maxine Waters, D-Calif.,"if you see any legislative action next year on a fiduciary standard, it will be at a state level, not in Congress."

  1. As Advisor Enforcements Rise, SEC Knows RIAs Are Hiding 12b-1 Fees (Author- Tracey Longo, Financial Advisor Magazine)

As reported by Tracey Longo, in the SEC's newly-released 2018 enforcement report, "investment advisors are still attempting to conceal mutual fund share class violations—specifically 12b-1 charges-- that result in higher investor costs." Earlier this year, the SEC conducted a voluntary program allowing advisors to self-report, "the fact that they sold investors more expensive mutual fund shares and received higher fees." Despite the SEC's efforts, disclosure failures still persist. "The Enforcement Division had close to a dozen ongoing investigations relating to failure to disclose 12b-1 charges and share class violations back in February, the report said." To read more about this enforcement issue, click here 

  1. SEC advisor enforcement on the rise amid limited resources (Author - Kenneth Corbin, FinancialPlanning)

As reported by Kenneth Corbin, "Nearly a quarter of the standalone enforcement cases that SEC attorneys brought in fiscal 2018 were against advisors, marking a dramatic uptick from the previous year." Per Corbin's article, "the 108 cases brought against IAs and ICs in 2018 represented nearly a 31% increase over 2017, when the commission brought 82 cases against those registrants. All told, the SEC brought 821 enforcement actions last year, up from 754 in 2017." All of this has been been accomplished despite the SEC's hiring freeze, which started in late 2016. 

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Don't forget to check out last week's top RIA compliance news articles on succession planning, lessons learned while setting up an RIA firm, and SEC Regulation Best Interest.. 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 Compliance

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