While the expected release in the New Year of the Department of Labor’s rule to amend the definition of fiduciary will be top of mind for advisors and broker-dealers, other regulations –as well as new faces at the two regulators that oversee these industries — will add to their compliance challenges in 2016.
A few days before Christmas, staff at the Securities and Exchange Commission released their recommendations on ways the agency should update the accredited investor definition, and the SEC will still be toiling in 2016 on a recommendation to require third-party exams for advisors.
The third-party exam rule is already receiving pushback from the industry as well as current and former SEC officials. Former SEC Commissioner Troy Paredes challenged advisors in early December to speak up now to influence the rulemaking, while the agency’s former director of investment management, Norm Champ, warned such a rule would be costly for advisors.
DOL’s fiduciary rule survived the threat of riders being attached to the omnibus spending bill that would have effectively killed the rule, but legislative efforts remain in play to topple the rule in the New Year.
Meanwhile, SEC Chairwoman Mary Jo White has also vowed that the agency will release next year its own uniform fiduciary rule for brokers and advisors. But the addition of two new SEC commissioners in the New Year, Hester Peirce and Lisa Fairfax, throw further into question how quickly the agency could move on such a rule.
Don’t forget other forthcoming SEC rules, including mandatory succession plan rules for RIAs as well as more information that the SEC wants advisors to provide on their ADV forms.
The succession rules would require investment advisors to plan for market stress and other events that may prevent an advisor from serving clients – including addressing the risks of losing key personnel.
On the Form ADV, the SEC wants advisors to not only provide more information about their use of derivatives in separately managed accounts, but also about their branch office operations and their use of social media.
Advisors should continue to hone their cybersecurity policies and procedures as the SEC has commenced its second round of cyber exams.
The Financial Industry Regulatory Authority also filed late in 2015 for SEC approval its Rule 2273, which would require member BD firms to provide an educational communication in connection with member recruitment practices and account transfers.