Reading the tea leaves through transition

Reading the tea leaves through transition

Skip Schweiss | April 13, 2017

As the new presidential administration works to get its many political appointments made and its policy prescriptions moving, we are keeping an eye on things for you.

Though much is uncertain in this transition period, here are a few of the things we’re watching.

Anti-money laundering — The Financial Crimes Enforcement Network (FinCEN) proposed last year to include RIAs in the definition of ‘financial institution’ for AML purposes. This would require your firm to develop policies and procedures, train your staff on them, update them annually, file Suspicious Activity Reports (SARs), and other compliance steps. Though we seem to be in a holding pattern right now with a new administration, it’s still possible this rule gets finalized in 2017, perhaps for a 2018 compliance date. If you’d like more detail, read what my colleague, Jeffrey Weiss, had to say in his blog.
Mandatory business continuity plans for RIAs — Last year’s SEC proposal mandated that your plan include contingencies in the event of natural disaster, cyber-crime, loss or incapacitation of an advisor, or loss of premises. While we certainly feel this is good business practice, the SEC’s proposal states “…it would be fraudulent and deceptive for an adviser to hold itself out as providing advisory services unless it has taken steps to protect clients’ interests from being placed at risk as a result of the adviser’s inability (whether temporary or permanent) to provide those services.” We feel that might be a bit much, and have worked with industry trade associations to communicate that sentiment.
Advisor oversight & exams — If I had a dollar for every time I’ve heard, “Broker-dealers are examined once every two years, on average, by FINRA, while RIAs are examined once every 9 years, on average, by the SEC”… I’d be sitting on a beach somewhere, rather than at my desk writing this blog. While no entity seeks more frequent regulatory exams, the two years vs. ten years narrative is a strong one with policy makers. We do believe that tightening up the RIA exam cycle could enhance investor protections, solidify the RIA industry reputation, and simply take this issue off the table. As the SEC fills out its Commission seats under the new administration, we’ll see how the sentiment evolves on this issue.
Uniform fiduciary standard for brokers and RIAs — Simply put, we do not see much momentum for this one in DC. Both current SEC Commissioners (one Republican, one Democrat) oppose this ‘harmonization.’ There are some interesting underlying advocacy cross-currents on this one which we’ll continue to watch and participate in.
Title protection — Today, almost anyone can call themselves a ‘financial planner’ or a ‘financial advisor.’ We believe this could be misleading to investors, and a possible disservice to Certified Financial Planners® and those investment advisers registered under, and compliant with, the ’40 Act. We continue to have conversations with policy makers – both at the federal and state levels – about protecting those titles for use by only appropriate, registered and/or certified parties – while ensuring investors’ best interest is top of mind for everyone. This one is a long game, though there does appear to be some policy maker sentiment in favor of change.
Department of Labor Conflict of Interest Rule — As I write this, the Office of Management and Budget has concluded its review of the DOL Rule and postponed its implementation by 60 days – so advisors now have until June 9, 2017 to comply. And the POTUS has directed the DOL to review the rule with an eye toward potential disruption in advice markets. That comment period expires April 17, 2017. Everyone who provides advice to retirement investors must comply with the rule’s “Impartial Conduct Standards” starting June 9, while other provisions of the rule are pushed back to January 1, 2018. This is the big one, the one we are most actively engaged in and watching. We will continue to add reference material on our DOL Resource Center on Veo to keep you up to date.

We have always believed strongly in the fiduciary advice model, and will continue to advocate for it – on behalf of your firm and its clients. I look forward to seeing you soon, and hearing your thoughts. I promise to keep you informed here with “Advocating for You” and on Twitter. Follow me @Schweiss_TDA for the latest.