RIA Compliance and Practice Management Blog

Top RIA compliance news articles for the week of Oct. 7, 2022

Posted by RIA in a Box

Oct 14, 2022 3:50:38 PM

This weeks recap focuses on Securities and Exchange Commission (SEC) audits, the Department of Labor's Rollover Rule, and the SEC's recently drafted strategic plan.

Each week, we are 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 firms can navigate the Securities and Exchange Commission’s (SEC) new marketing rule, the SEC’s record-keeping regulations, the Financial Industry Regulatory Authority’s (FINRA) new continuing education (CE) requirements, and the succession of a financial advisor.

Here are our top investment adviser compliance articles for the week of Oct. 7, 2022:

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    1. A Marketing Conundrum (Author Mark Schoeff Jr., Investment News)

The SEC’s new marketing rule offers a lot of room for creativity. For instance, advisers can add a multiplier effect to referrals and distribute online and over the air good reviews from clients and third parties. However, that freedom comes with a myriad of obligations governing such ads, which could lead to tension between the marketing and compliance sides of advisory firms.

Often, small advisory firms have trouble complying with SEC rules because of their limited compliance staff. However, when it comes to testimonials, large firms may also struggle due to tracking requirements associated with individual advisers.

Advisers must ensure that messages they disseminate on TV, radio, websites and social media comply with the disclosures and obligations in the marketing rule. There are seven general prohibitions, which prevent advisers from making untrue, unsubstantiated, or misleading statements and presenting potential benefits in a way that is not “fair and balanced” with mentions of potential risks and limitations. Firms will have to find the “sweet spot” between creativity and complying with the regulations.

    2. State regulators look to keep pace with SEC marketing rule (Author Mark Schoeff Jr., Investment News)

The SEC Marketing Rule, which will go into effect on Nov. 4, will allow registered advisers to use testimonials in their marketing materials. However, whether advisers registered at the state level can take advantage of the same opportunity depends on if their state adopts the SEC rule or something similar.

The North American Securities Administrators Association (NASAA) will try to provide states with guidance on how they can update their advertising regulations.

According to Stephen Brey, a Michigan securities regulator, “We’re working on a model rule that will largely mirror the SEC rule.” That could be great news for state-level advisers who want to take advantage of the opportunities the new rule offers and start airing testimonials.

    3. SEC Expands WhatsApp Scrutiny To Money Manager Communications (Author – Lydia Beyoud, Financial Advisor Magazine)

The SEC has placed great emphasis on its record-keeping regulations. The regulator has recently sent letters to investment firms requesting information on their employees’ communications practices.

Under US rules, financial firms must monitor business communications to “head off” improper conduct. Compliance with that requirement has already proven difficult due to advancements in technology. However, compliance was further strained during the pandemic. These factors create greater complexity and have encouraged the SEC to reconsider its approach to electronic communications and record-keeping.

According to Peter Dugas, executive director at financial compliance advisory firm Capco, “We would expect the SEC to look into investment advisers given the fact there’s so much complexity around the technology for communication within these financial institutions.”

   4. Strategies Planning for 2023: Think “What” Not “Why” (Author – Matt Sonnen, Wealth Management)

As firms enter the fourth quarter of 2022, many RIAs will conduct strategic planning sessions for 2023. However, all too often during these sessions, “why” questions are asked instead of the more important “what” questions.

One of the most important “what” questions to ask: “what type of business are you building?”

“What” questions, such as the one above, allow your firm to define what objectives are of utmost importance. “Why” questions can follow to add more detail to that objective and how your firm will accomplish that goal. It’s important to define the “what” as this gives firms a better understanding of what to strive for in 2023.

   5. When Succession Plans Fail, Keep Trying (Author – Anne Field, Wealth Management)

While a lot of attention is given to financial advisers’ lack of succession planning, not enough attention is paid to instances in which the succession plan, however well-prepared it may be, is not followed by the adviser’s selected successor. Typically, this problem occurs because:

  • Senior and junior advisers haven’t clearly thought through what they want or documented their understanding in writing.
  • Advisers may have a legal agreement that’s too vague to follow.
  • Junior advisers change their minds.

Should a firm find itself in this situation, as it’s often the firm that has to correct these instances, they can either enlist the assistance of existing employees in support roles or, if the adviser is too close to retirement, they can sell, even if it’s not the preferred route.

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Don't forget to check out last week's top RIA compliance news articles that focus on the SEC Marketing Rule, the DOL's PTE 2020-02 rollover ruling. 

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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