RIA Compliance and Practice Management Blog

Top RIA Compliance News Articles for the Week of September 13th, 2019

Posted by RIA in a Box

Sep 20, 2019 3:24:59 PM

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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 new Form CRS, continued focus on mutual fund share classes, and the growth of the RIA industry.

Here's our top investment adviser compliance articles for the week of September 13th, 2019:    

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1.  SEC continues to see problems with advisers selecting too-expensive share classes (Author - Mark Schoeff Jr., InvestmentNews)

Despite the large number of enforcement actions that the SEC has taken as part of its Share Class Selection Disclosure Initiative 18 months ago, Peter Driscoll, director of the SEC Office of Compliance Inspections and Examinations, says the issue is still appearing during regulatory exams. “Part of the problem may involve brokers who have become investment advisers,” Mark Schoeff Jr. explains. Opponents of the Share Class Selection Disclosure Initiative like the Financial Services Institute are calling for clarification of the rules before enforcement actions are taken. “’Their current approach is inherently unfair,’ Mr. (David) Bellaire said. ‘Firms were not on notice that the SEC's expectations had changed,’” Schoeff, Jr. quotes.

2.  SEC's New Form CRS: A Breakdown (Author - Beth Miller, ThinkAdvisor)

On June 5, 2019 the SEC finalized a new rule in which SEC-registered RIA firms must create a brief, two-page customer relationship summary, known as the Form CRS, to distribute to prospects and clients. This document has five mandated sections including an introduction, relationship and services, fees, disciplinary history, and additional information. In this article, Beth Miller provides a detailed breakdown of the requirements of each individual section along with presentation and format requirements and instructions on how to file and update the form.

           3. Fiduciary Pundits Weigh Odds of Lawsuits To Overturn Reg BI (Author - Tracey Longo, Financial Advisor Magazine)

Tracey Longo discusses the SEC’s Regulation Best Interest ("Reg BI") rule with policy experts who suggest that enough lawsuits could potentially overturn the new rule. According to Longo, “Many pundits and legal experts believe that the SEC’s chances of prevailing against the Reg BI lawsuits are diminished precisely because it lacks the authority to circumvent Congress’ explicit requirement in the Investment Advisers Act of 1940. That law requires brokers to register as fiduciary investment advisors if they are offering and being compensated for advice.” Other legal experts point to the SEC’s track record of defending its rules to support the likelihood of lawsuits overturning the rule.

4. State Regulators Bars Arbitration Clauses in Advisor Contracts (Author - Erick Bergquist, WealthManagement.com)

As of this past Monday, state-registered RIA firms in the state of Virginia have been banned from using mandatory arbitration clauses in client contracts. According to Virginia state regulators, these mandatory arbitration clauses are “contrary to the fiduciary duty” of the investment advisor. Erick Bergquist states, “While mandatory arbitration clauses are commonly used in the financial services industry, in particular in broker/dealer contracts with clients, and have been subject to attack by consumer groups and regulators in the past, Virginia appears to be the first state to seek to limit them in financial advisor contracts.”

5. Advisory Firms Hit Record Numbers And AUM, The IAA Scorecard Reports (Author - Tracey Longo, Financial Advisor Magazine)

The Investment Adviser Association ("IAA") has released the “2019 Evolution Revolution” annual industry scorecard report. Tracey Longo walks through significant findings in this report, particularly focusing on the growth of the RIA industry. According to Longo, “The annual report found the universe of SEC-registered investment advisors has reached a record high of nearly 13,000 advisory firms—up 3.3% from last year’s report.” The report also highlights AUM growth, increasing demand, and the total number of clients served by investment advisory firms.

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Don't forget to check out last week's top RIA compliance news articles focusing on cybersecurity, a new lawsuit against the SEC to block Reg BI, and how to name your RIA firm.


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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