What to expect on the regulatory scene in 2020

One thing we've been paying a lot of attention to is the SEC's proposed modernization of its advertising and cash solicitation rules for advisers. It's a significant step, considering the existing rules are from the 1960s…that's right, from before you could even send a fax

The good news is that, in crafting the proposed updates, the SEC reached out to many professionals in the industry and considered similar rules, like how the EU handles this. The proposed rule they came up with is principles-based and media neutral, covering more channels. And it would permit the use of testimonials, endorsements, and third-party ratings of your services—subject to certain conditions, of course.

Some of the changes to be aware of include:

• The definition of advertising: The definition would be greatly expanded and cover channels including social media. A couple of highlights: Market commentary and investment theses would be considered advertisements. Hyperlinks to third-party content or third-party posts to social media sites would not be.
• Performance: The proposed rule's requirements for presenting performance results are specific to retail audiences vs. non-retail audiences. The rule also includes detailed guidance covering related performance and hypothetical performance.
• Review and approval: The rule would require an employee or employees to be designated to review and approve advertisements prior to dissemination (excluding materials sent to an individual and also live oral communications).

It's important to make your voice heard: The comment period closes February 10, so leave your input today by going here. We expect comments to focus on—among other areas—the issue of hyperlinks, because in the proposed rule, a link to a disclosure is not considered sufficient.

This seems like a priority for the SEC, so we can probably expect to see a final rule by the end of this year.

Get the details and get prepared:

• Our recent webcast on this topic covered a lot of the specifics, with questions from your peers. Over 600 advisors joined to hear from Associate General Counsels at the Investment Advisor Association. If you couldn't make it or want to review the conversation, find the replay here.
• The SEC fact sheet can be found here: https://www.sec.gov/news/press-release/2019-230
• The full, 505-page rule proposal here: https://www.sec.gov/rules/proposed/2019/ia-5407.pdf

And in other regulatory news…

• Reg BI: Headlining last year's updates was the Securities & Exchange Commission's Regulation Best Interest (“Reg BI"). No time to sift through the 1,363-page final rule? Don't sweat it. We created a much-streamlined summary for you, here. As always, consult with your legal and/or compliance counsel for guidance on how this rule will impact your specific business.
• DOL: We expect the Department of Labor to propose its new rule on standards of care, likely intended to integrate with the SEC's Reg BI, any time now. We'll keep you posted.
• Private Investments: Some companies now wait much later in their life cycle to go public, and the SEC is concerned that main street investors don't have access to invest in these companies during the private stage. Details are scant as of this writing, but the SEC is talking about expanding access to private investments through changes in the accredited investor rule. We're keeping an eye on this.
• IRS: The Internal Revenue Service issued a Private Letter Ruling allowing investment advisers to deduct their fees from nonqualified annuities without it being a taxable event to the investor, subject to certain constraints. More here: https://www.thinkadvisor.com/2017/10/19/7-things-to-know-about-irs-private-letter-rulings/
• SECURE Act: The Setting Every Community Up for Retirement Enhancement (“SECURE Act") passed the House in April by an overwhelming 417-3 vote (who said Congress is always partisan?), passed the Senate, and was signed by President Trump on December 20, 2019. Among other provisions, the SECURE Act would raise the required minimum distribution age from 70 ½ to 72, permit penalty-free retirement plan withdrawals of up to $5,000 upon the birth or adoption of a child, allow 529 education funds to be used to pay down student loans, open up the Multiple Employer Plan (MEP) market, and restrict use of the “stretch IRA" provision as a planning tool.
• Standard of care: We are also watching development of enhanced standard of care proposals in the states. Nevada (https://www.nvsos.gov/sos/home/showdocument?id=6156), Massachusetts (https://www.sec.state.ma.us/sct/sctfiduciaryconductstandard/fiduciaryconductstandardidx.htm), and New Jersey (https://www.njconsumeraffairs.gov/Proposals/Pages/bos-04152019-proposal.aspx) proposed rules last year, but none have made it across the goal line.

As always, last year we were pleased to work closely with friends at the CFP Board, Committee for the Fiduciary Standard, Consumer Federation of America, Financial Planning Association (FPA), Institute for the Fiduciary Standard, Investment Adviser Association (IAA), National Association of Personal Financial Advisors (NAPFA), and others to advocate on your behalf.

Please let us know your thoughts on these and other related issues, so we can better align our advocacy efforts to support your needs.