More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
As a follow up to last week’s blog, which was a roundup of top advisor events in 2013 (“Much of 2013’s Important News Arose From What Didn’t Happen”), here’s my look ahead at what independent advisors might expect in 2014. While I hope we’ve learned to discount out of hand any predictions of specific events, we can discern trends that appear likely to continue, barring any unforeseen events. One trend that isn’t likely to continue is the stock market posting 25% annual gains: I’ll be very happy to be wrong, but I wouldn’t count on it, and neither should you. While independent advisors will undoubtedly continue to attract new clients anxious to get in on the new “boom,” advisors will need to dust off their programs for managing client expectations, and get their clients—both old and new—into a more realistic mindset. Here are some thoughts about a few trends that are far more likely to continue:
- The Explosion in Advisor Technology
If the flood of breakaway brokers going independent has a silver lining, it’s that major tech companies have finally noticed the independent advisory world. Technology, of course, has been the driving force behind the 30-year explosion in independent advice. When mainframes ruled the digital roost, only the largest brokerage firms controlled the information they held. But with the rise of the microprocessor and the Internet, independent advisors have the whole world literally in their back pockets. While we’ve still haven’t sorted out the best ways to harness the power of the Internet (I’m just guessing that pornography, vacation pics and online dating ain’t it), the power of independent advisors seems to double every year: even 10 years ago, who would have guessed that advisors would seamlessly work with multiple custodians, offer highly customized allocations with layers of model portfolios, or mass communicate with clients in real time? Look for all these functions to increase exponentially, as well as applications we haven’t thought about: Can anyone say self-clearing?
- Increased Regulation
As I wrote last week, most indicators point to a fiduciary standard for brokers being dead in the water; my best guess is that faced with overwhelming pressure by the securities industry for a watered-down standard that will be better for marketing than for investors, new SEC chair Mary Jo White will punt, and put a new standard on the shelf. However, to appease the industry and its backers in Congress, the Commission will step up its regulation of already client-centered RIAs, under the “harmonize regulation” mandate of Dodd-Frank. Look for increased in-office audits and more citations for petty violations to prove the SEC is “doing something.” (As far as I can tell, not one of the increased audits has turned up an actual client harm and/or criminal wrongdoing.) Hopefully, the Commission will hop on the tech train and require advisors to electronically file annual audits, which could be digitally reviewed with far greater precision and at far less cost. It’s bound to happen sooner or later.
- Adding Healthcare Services
As ObamaCare actually gets implemented over the coming year, and a clearer picture emerges of who is actually funding the 30 million or so “free” health insurance policies under the PPACA, clients will increasingly look to their financial advisors for advice on what do to about their healthcare issues, including restricted access to doctors and hospitals and sky-rocketing costs (insurance premiums, higher deductibles, lower limits, and fewer qualifying treatments and drugs). When I started covering independent advisors back in 1984, their primary services were tax-reducing strategies and products—it’s not beyond the pale that the primary service for advisors of the future will be healthcare advice.
- A Big Year for the CFP Board
Finally, I suspect that 2014 will be a pivotal year for the CFP Board. Battered in 2013 by repeated mishandlings of advisor uses of the description “fee-only” and an ill-advised attempt to enter the continuing education business, the Board suffered a major blow to its credibility at exactly the wrong time. While broker reregulation may be dead in Washington, advisor reregulation is all but inevitable. At least for the moment, FINRA’s attempts to envelope RIAs have been rebuffed. A beefed-up SEC is likely to fill this perceived void, but that’s not a foregone conclusion. Consequently, the prospects for an alternative regulator—such as the CFP Board—have never been brighter, at least until the Board gave itself two public black eyes. This year, look for the Board to repair its public image by hiring a high-profile director of investigations and cleaning up its rules of professional conduct.
Sorry there’s not more good news in my crystal ball. Hopefully, another year of solid market gains and powerful tech advances will overshadow whatever happens in Washington. Here’s wishing you a Happy New Year