Risk and uncertainty are decreasing in some important areas for wealth managers and their clients, replaced by strategic planning opportunities with clients—tax and estate planning is one example of this. Other areas are unfolding now, such as regulation, which continues to be a top risk for wealth managers, according to the Top Wealth Managers survey for 2010.
We will get another read on top risks for wealth managers in late January when we conduct the next Top Wealth Managers Pulse survey for the quarter ended Dec. 31. Registered Investment Advisors (RIAs) with $50 million or more under management are welcome to participate. Sign up for Inside Wealth (at no cost) to be notified when the survey opens.
As the SEC releases the Dodd-Frank mandated studies affecting brokers and RIAs—an SRO for registered investment advisors, and a fiduciary standard for brokers who provide advice—it would seem that wealth managers of all stripes are facing risks that they won't know the scope of until they see what the SEC recommends. Though this uncertainty can be uncomfortable, it is unlikely that the SEC will require firms to turn on a dime. The SEC's rule writing, comment and adoption of final versions of rules typically proceeds at an orderly pace.
Regulatory Risks
Two risks to RIA firms and one for broker-dealers stand out, and these may change the game for investment advisors and brokers in ways we cannot currently anticipate.
One is the possibility of a self-regulatory organization (SRO) for RIA firms. Already, RIAs with less than $100 million are being required to register with states instead of the SEC. For firms that had been SEC-registered before, this will be a big change, and will shift thousands of RIA firms from SEC registration to state registration.
Having a layer of SRO regulation could be a blessing or a curse for RIA firms, depending on make-up of the new organization, who is running it and execution of self-regulatory requirements. It could result in more sharing of best practices and better education and information for a far-flung independent group of RIA firms. It could also be expensive and painful. FINRA has made it known that they'd like to be the umbrella if there is an RIA SRO, in part because they already have responsibility for regulating broker-dealers who also have RIA arms, and FINRA wants—and many would argue needs—to be able to look at both the BD and RIA sides of the business. But should that make them the best candidate for an SRO for independent RIAs?
