Top RIA Compliance News Articles for the Week of September 17, 2016

1. Financial Advisers Severely Underestimating Cyberthreats: Experts (Author- Jeff Benjamin, InvestmentNews)

Jeff Benjamin provides an update on the latest information security threats impacting RIA firms with his coverage of a panel of technology security experts that spoke at this week’s Insider’s Forum Conference. Benjamin notes the largest cybersecurity threat facing the RIA industry today is “underestimating the risk of a technology threat in the form of a determined hacker or illusive virus.” Steven Ryder, founder and president of True North Networks, claims “a third of all computers are regularly infected with some type of virus or malware.”  Julian Makas, founding partner of ITEGRIA, stressed that public WIFI connections need to be avoided because “once you’re on the network everybody can see your traffic, even if it’s password-protected.” Makas further argues that it is essential that a collaborative culture is established at the firm that encourages employees to speak up by “letting your employees know they’re not going to get in trouble if they do something that results in a computer virus, because the longer it goes the worse it will get.” Be sure to check out the replay of the RIA cybersecurity webinar we hosted this past fall with Julian Makas of Itegria.

2. Common Advisor Myths About the DOL Fiduciary Rule (Author- Matt Matrisian, Wealth Management)

Matt Matrisian, Senior Vice President and Director of Practice Management at AssetMark, writes that the new Department of Labor (DOL) fiduciary rule has led to several “reoccurring misperceptions” that advisors have in relation to the rule. In regards to RIA firms looking to comply with the fiduciary rule, Matrisian notes that “RIAs currently follow the Advisers’ Act fiduciary standard, which is less expansive than ERISA’s standard. Under the Advisers’ Act, RIAs previously could resolve conflicts of interest when advising on retirement assets merely by disclosing the conflict. Now, under ERISA, they must avoid any conflicts of interest entirely.” In addition, Matrisian writes that the timing of the rule’s implementation has also created some confusion. In particular, he clarifies that “while some disclosure elements of the best interest contract (BIC) run through January 1, 2018, advisors will be held to a fiduciary standard for all BIC assets months earlier — on April 10, 2017.” 

3. 5 Hot Spots on Your Form ADV That Reveal Conflicts (Author- Ann Marsh, Financial Planning)

In a recent study conducted by the Institute for the Fiduciary Standard, it was discovered “only 18% of RIAs refrain from five crucial conflicts of interest.” Ann Marsh writes that while the study only sampled a small percentage of RIA firms registered with the Securities and Exchange Commission (SEC), the findings were significant. In particular, the study looked at five sections of the Form ADV including firms that disclose individual investment adviser representatives that also are affiliated with a broker dealer or who are licensed insurance agents. In addition, “firms that receive compensation other than fees from clients” and other related areas of conflict were noted.

4. What the Proposed SEC Rule on Continuity Planning Means for Your RIA (Author- Katelyn Kogan and Carlos Martins, Wealth Management)

Katelyn Kogan and Carolos Martins, staff members of New York-based accounting firm WeiserMazards, write that “business continuity and disaster planning has been a focus of the SEC in its examinations of RIAs in recent years.” This same sentiment is echoed by the SEC’s recent release of its proposed rule to require RIA firms to establish business continuity plans. The authors note that the most recent proposal by the agency requires advisors to have a set plan in place should to prepare for natural disasters such as Hurricane Sandy. It is expected the rule is close to being finalized and due to positive support and feedback, it is unlikely there will be significant changes to it. For advisory firms that do not currently have a “robust plan” in place, the authors recommend that the firm looks to “assess current systems and processes, develop and document a plan that identifies potential disaster or disruption scenarios, implement a documented plan, and test the plan to ensure effectiveness.” 

5. Succession Planning: Why Your Employee Should Not Take Over (Author- Andrew Pavia, Financial Planning)

Andrew Pavia reports from the recent Financial Planning Association (FPA) annual conference that “many RIA owners look to their employees to take over the business when they retire. Yet some advisers are overlooking critical aspects of what an internal succession plan actually entails.”  At the recent FPA conference, industry investment banker David DeVoe makes the case that “your successor is not you 20 or 30 years ago,” and that “there is this disconcert that a lot of us have in terms of what the firm is worth and what our employees can afford.” Devoe further estimates that 30% of firm principals do not currently have a succession plan in place.

Don’t forget to check out last week’s top RIA compliance news articles on the new SEC examination sweep of RIA firms that hire individual advisors with past disciplinary issues and whether to start or join an RIA firm.. Be sure to check back next Friday for next week’s top articles!