RIA Compliance and Practice Management Blog

Top RIA compliance news articles for the week of September 16th, 2022

Posted by RIA in a Box

Sep 23, 2022 2:30:05 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 the Securities and Exchange Commission's (SEC) Marketing Rule, the North American Securities Administrators Association (NASAA) recently published enforcement report, and a new model rule from the state regulator, which allows advisers to keep their licenses for a period after leaving the industry, and the SEC's warning to investors regarding performance claims.

Here are our top investment adviser compliance articles for the week of September 16th, 2022:

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    1. How Advisors Can Get Ready for New SEC Marketing Rule (Author – Jeff Berman, Think Advisor)

Advisors can prepare for the upcoming SEC Marketing rule compliance date using the strategies discussed in this article. The compliance date is Nov. 4, 2022, with the new rule officially replacing the current advertising and cash solicitation rules. This will allow advisors to implement new tactics, like testimonials, but first they must carefully review the changes in the new rule. Jason Vinsonhaler, RIA in a Box director of compliance, emphasizes the importance of firms updating and implementing their policies and procedures to prevent potential regulatory violations. 
Advisors are also recommended to consider methods to compliantly collect reviews, such as adding a message and a review link to their email signatures and appropriate customer communications. Most importantly, before advisors implement any new marketing tactics, they should consult with their compliance department. 

    2. NASAA warns of promissory notes in sobering annual report (Author – Dan Shaw, Financial Planning)

This week, the NASAA published its annual enforcement report, which shows an uptick in enforcement actions related to promissory notes in 2021. The NASAA also listed promissory notes as top threat to retail investors in 2023. Dan Shaw explains how promissory notes are a form of debt that "pledges to deliver fixed interest payments to an investor by given dates." The state regulator identified instances where both securities and their sellers were unlicensed, with promises of double-digit returns. The report also listed a high ranking of cases related to social media, digital assets, stocks and equities, and ponzi or pyramid schemes.

    3. NASAA model rules let advisers maintain licenses while out of industry (Author – Mark Schoeff Jr., Investment News)

This week, the NASAA approved a model rule for investment adviser representatives (IARs), which allows advisers to maintain their licenses when they leave the industry for up to five years. In order to keep their licenses during this break from the industry, IARS must long complete their continuing education requirements to stay up to date with regulations and industry developments. This new rule provides flexibility for individuals seeking to temporarily step out of the industry, perhaps to start a family, provide family caregiving, or overcome health problems. Mark Schoeff Jr. points out that individual states must adopt the model rule to make it applicable to IARs in each jurisdiction.

   4.State regulators see decline in enforcement actions (Author – Mark Schoeff Jr., Investment News)

In this article, Mark Schoeff Jr. provides a high-level overview of the findings from the NASAA annual enforcement report. Although there was a decline in enforcement actions in 2021, the report shows an increase in both fines and restitution to investors. In fact, fines dramatically increased in the past year, as they went from $42 million in 2020 to $145 million in 2021. In an effort to keep bad actors out of the industry, the regulator also withdrew more than 4,800 individual license or registration applications in 2021 (a 33% increase from 2020). The article concludes by sharing the top investor threats for 2023 are promissory notes, cryptocurrency digital assets, and internet and social media scams. 

   5. SEC Warns Investors on Performance Claims (Author – Melanie Waddell, Think Advisor)

Melanie Waddell highlights the key takeaways from the SEC's recent investor bulletin on performance claims. The bulletin guides investors on how to review and understand advisers' performance claims in conjunction with their investments' performance. Specifically, investors should check if fees and expenses are included in the performance calculations, given that they reduce investment returns. This bulletin can serve as a guide to investment advisors on the different aspects to consider when creating and reviewing performance claims for accuracy. The SEC advises investors to look into the reliability of performance claims by considering guarantees, targets and projections, past performance, cherry-picked performance, back-testing, and benchmark performance.

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Don't forget to check out last week's top RIA compliance news articles that focus on compliance with the Marketing Rule, cryptocurrency regulation, and anticipated amendments related to client fees and the Custody Rule. 

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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