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Regulation and Compliance > State Regulation

What Every RIA Should Know About the Shifting Regulatory Landscape

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It’s been a bull market for over a decade, and financial advisors around the country have enjoyed a nearly unchecked ability to manage their own businesses and their client’s assets as they see fit. However, much like the markets, what goes up must come down, and advisors may need to face a new reality when it comes to government regulations and business management.

A Growing Trend

In recent years, there has been increased scrutiny on how financial advisors — especially sole practitioners and small registered investment advisors — manage their own firms. The regulatory focus is shifting towards ensuring continuity of service to clients in order to better protect their interests and investments.

On June 30, 2020, the Securities and Exchange Commission’s Regulation Best Interest goes into effect for broker-dealers, RIAs, and dual registrants with a goal of improving the transparency and quality of investor relationships. This includes recommendations of account types, rollovers or transfer of assets, and implicit hold recommendations arising from any agreed-upon account monitoring arrangement.

Reg BI imposes a new standard, beyond existing suitability obligations, to act in the best interest of the retail customer at the time a recommendation is made without placing the financial or other interest of the broker-dealer or associated persons ahead of the interest of the retail customers.

In 2016, SEC proposed another rule to mandate “business succession and transition plans” for the financial advisors the agency oversees. This proposal is stalled and there is currently no federal law requiring advisors to have a succession plan in place. However, according to the North American Securities Administrators Association, at least 12 states require RIAs to have business continuity and succession plans in place that minimize “service disruptions and client harm that could result from a sudden significant business disruption.”

(Related: Penn Mutual Aims to Ramp Up Advisor Support)

For example, Massachusetts has taken steps to adopt its own more stringent broker-dealer conduct standards. In November 2019, William F. Galvin, Massachusetts Secretary of the Commonwealth, signed off on new regulations that would impose a uniform fiduciary conduct standard on broker-dealers, agents, investment advisors, and investment advisor representatives when dealing with their customers and clients in the state.

According to Galvin’s announcement, the proposed changes to existing regulations are expected to increase accountability in the financial industry and protect investors by subjecting investment advice to a true fiduciary standard, which includes having a succession plan in place. Municipalities and pension plans would receive the full protection of the heightened conduct standard, along with individual investors.

“I am proposing this standard because the SEC has failed to provide investors with the protections they need against conflicts of interest in the financial industry with its ‘Regulation Best Interest’ rule,” Galvin said. “My office has seen firsthand the serious financial harm that investors and savers have suffered as a result of conflicted financial advice,” Galvin continued. “Investors must come first.”

What’s an Advisor to Do?

As the regulatory climate continues its seismic shift, financial advisors need to begin planning to ensure they remain compliant with new government mandates while meeting client expectations. Here are a few tactics that advisors can implement now to protect themselves and their clients.

1. Create a succession plan.

Regulators are taking notice of advisors who don’t have a succession plan as being “deficient,” and they are enforcing the SEC adoption of the fiduciary duty requirement. A simple fix to this problem is for every advisor to have a succession plan. With more advisors over age 70 than under 30, it’s an ideal time to partner with younger advisors to mentor them and prepare them to take over your book of business.

2. Have a retirement plan.

Retirement planning shouldn’t be a novel idea to advisors, but many opt to die at their desks, putting into question how capable an advisor is who is working well into his or her Golden Years. The idea of working with “diminished capacity” is now a major concern, and there is increased liability involving errors and omissions by aging advisors.

It’s time for advisors to listen to their own retirement advice and have a plan that allows them and their families to benefit from the value they built up in their practice over the years so they can comfortably retire and seamlessly transition their clients to the next generation.

3. Make business continuity a priority.

What happens if you get hit by a bus? It’s an old adage, but poignant in today’s thriving RIA market where many advisors do not have a contingency plan to care for clients if life suddenly goes sideways. It is most definitely in the “best interest” of your clients to have a plan in place that safeguards their future.

At its core, increased regulatory oversight is meant to deliver on an advisor’s promise to guide clients and help them prepare for life’s transitions. If you are leaving those same clients vulnerable by not preparing your own practice for when you are no longer at the helm, you are breaking that promise. And, if that’s not enough to spur definitive action, then consider that fiduciary requirements will only increase with the Best Interest launching in June. Either way, it’s time to plan.

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William H. McCance is president and chief executive officer of Trust Advisory Group, a financial services company that owns a broker-dealer, a registered investment advisor and an insurance general agency. He started his career on the floor of the New York Stock Exchange.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.