July 4, 2015
Stay Calm, Cool and Collected (and in Compliance)!
This year we celebrate the 75th anniversary of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. This year also marks my 26th year since founding The Consortium. I entered this great financial services industry in 1978 as a (very young) stockbroker at a national brokerage firm. You may be trying to guess my age, but let’s just suffice it to say that I am getting older and wiser. I have seen many changes since my entre into the industry. But the purpose of this annual state of the industry communique is simply to reflect on what has happened over the last 12 months.
Are you listening to the rules, regulations, and regulatory rumblings? Or are you bucking compliance? Despite the regulatory hurdles, it is my job to help you stay calm, cool, and collected.*
*Factoid: In the 1960’s the Secret deodorant commercial used this phrase. It is also an equestrian term used to describe a horse that is well in hand, or under control. A horse that is collected, is listening to its rider and not in danger of bolting or bucking.
This last year was the brigade of the robo-advisor - they spawned like rabbits - popping up here, there, and everywhere from out of the blue. Who are these Atari-like creatures? Can the SEC sanction a computer for being out of compliance? Can an algorithm be a fiduciary?
Mary Jo White, Chair of the SEC, has been dragging her feet on the fiduciary stance. This affects both the BD vs. RIA intra- industry fight, and the ability to give advice to ERISA plans. She will look into this "in the near term." This has been her mantra from early in her tenure. We should figure this thing out once and for all, and move on.
Well, she was not fast enough for the Department of Labor. Despite efforts by many parties to make the DOL move even slower than the SEC, the DOL proposed their own fiduciary rule. As I draft this letter, the status changes day by day. The DOL extended the comment period, albeit keeping it way too short to make meaningful comments. A Congresswoman has threatened to cut DOL funding if they move forward too soon. Industry participants are putting their two-cents in, but the DOL doesn’t think it’s worth much.
Focus this year has turned to the "vulnerable client." This means the elderly or others with diminished capacity. State and federal regulators are looking for ways to give advisors more effective tools to protect clients whenever an adviser suspects financial or other abuse of a vulnerable client. A potential reform (currently available in limited state jurisdictions) includes the ability to "pause" transactions in which an advisor suspects financial abuse. Of question is the ability to refuse or delay a transaction – contrary to the explicit instructions of the client – when it appears that the client is being defrauded or exploited.
The regulators also want you to pay attention to "transition planning" to identify your successor. Whether through an unforeseen disaster event or your planned retirement, you need to be concerned about serving your clients’ needs.
Once again FinCEN has considered adding RIAs to the definition of "financial institution" subject to Anti-Money Laundering ("AML") rules. No sooner did they mention it, the topic seemed to die once again. While no one can turn a blind eye to AML, and there are some basic procedures RIA should have in place, there is no need to overdo it. RIAs do not need to have the same onerous procedures that BDs do. But be vigilant to watch for any updates in the law.
There are resources to help you stay calm, cool, and in compliance:
- CompliancE-Post: A free monthly e-mail service with brief postings of what's the hot industry buzz.
- CompliancE-News: The executive summary of all the news that made the news. Annual subscription 12 monthly e-mail issues.
- CompliancE-Alert: A value-added subscription service (which also includes the CompliancE-News) - provides timely alerts when news hits, and newly published research and forms.
If you are starting out or in need of a refresher, check out Go to CEO! How to Start Your Investment Advisory Firm - available as an e-book.
Additional compliance resources... If you are a do-it-yourself type person, I offer an array of products that are both educational and easily customizable to your practice. These include Policies & Procedures (including policy for vulnerable clients), Cybersecurity Kit, Business Continuity Plans, and more. Click here for a complete list.
Consulting services are available for clients that want me as an active member of their team under annual retainer. I generally keep a full client load. However, I do take on new clients from time to time, so keep those inquiries and referrals coming. Email me.
RIA Fast Track Program includes compliance resources and consultations to get your operations up and running. Designed as a start-up service for new RIA firms, it is a part do-it-yourself and part "Ask the Expert." If you are creating a new RIA, contact me for details.
RIA Pump It Up Refresher Course includes compliance resources and consultations to get your operations in tip-top shape. Designed to lift the burden of compliance off your shoulders in an efficient and economic manner, it is a part do-it-yourself and part "Ask the Expert." If you need to dust off your compliance files, contact me for details.
I have been lifting the burden of compliance for you for 26 years