Page 40 - Investment Advisor April 2021

Rep. Maxine Waters, D-Calif., main- during a webcast held by the Securities complexity does too,” said Pete Driscoll,
tains her spot as chairwoman of the Industry and Financial Markets head of the division, said during the IAA
House Financial Services Committee. Association that the agency has moved compliance event.
Simon said he expects that committee’s beyond the Phase 1 “good faith effort” The exam division is “hoping for 15%
newly created Diversity and Inclusion Reg BI exam cycle. exam coverage of advisors,” as examin-
Subcommittee, which was created last That said, the agency is “not looking ers were able to achieve in 2020, “but
year, “may focus on the asset management to do gotcha exams or make enforce- it’s going to be tough without additional
industry sometime in this Congress.” ment referrals per se,” Polise said. resources,” he added.
With a 50-50 Senate, added Langston “We’re still understanding that the rule Driscoll noted the “nutty year” so
Emerson, a partner at Mindset DC — a is complicated, that there are myriad far with COVID, market volatility and
bipartisan public policy firm — it will be ways for individual firms to address the meme stocks. “There’s just a lot of
“very difficult” to get significant legisla- four core obligations” in Reg BI. areas where we have to pivot from a
tion passed. cause perspective.”
As a result, “there will be The SEC [noted that] Reg BI The SEC noted in releasing
a large focus [by both cham- exams also will be expanded [to] its 2021 exam priorities that
bers] on urging and pressuring in the last five years, the num-
the Biden administration to do focus on whether BDs are making ber of RIAs the SEC oversees
rulemaking from a unilateral increased to more than 13,900
perspective,” Emerson said, as recommendations that they have from about 12,000, and assets
well as “a push and pressure a reasonable basis to believe under management of RIAs
on the [regulatory] agencies to increased to $97 trillion from
do more.” are in customers’ best interests approximately $67 trillion.
and evaluating BD processes
SEC EXAM PRIORITIES — SEC AD RULE
BEFORE GENSLER for compliance and alterations The SEC’s final rule on RIA
The SEC’s Division of advertising and marketing
Examinations released in early made to product offerings. practices was published in the
March its exam priorities for Federal Register on March 5 —
2021 — with a compliance with Reg BI, Reg BI “is a serious obligation,” Polise setting in motion a May 4 effective date.
Form CRS and whether RIAs have ful- added. “In our good-faith exams we saw RIAs have 18 months to come into
filled their fiduciary duties of care and very good efforts and attempts by peo- compliance with the new rule.
loyalties as the top issues being probed. ple to comply with the rule but there The SEC passed the ad rule changes
Amy Lynch, president of FrontLine were some areas that could certainly be in late December. The rule allows advi-
Compliance, stated in an alert that improved. Would they rise to the level of sors to use testimonials and endorse-
“it’s important to note that the [2021 enforcement referrals? Probably not — ments, which include traditional
exam] Letter was issued prior to the more like deficiency letters to encourage referral and solicitation activity, subject
new Chair’s arrival to the Commission.” people to take a more aggressive approach to certain conditions.
Once Gensler “is in place (assuming offi- towards some of those requirements.” The amendments create a merged
cial confirmation) the list of priorities Other exam priorities will be Libor, rule that will replace both the current
for exams may very well change.” anti-money laundering, RIAs’ compli- advertising and cash solicitation rules.
The SEC noted in its letter that the ance programs, reviews of business con- Karen Barr, president and CEO of
scope of Reg BI exams also will be tinuity and disaster plans, as well as the Investment Adviser Association,
expanded. They will focus on whether fintech and digital assets. told IA in an email that publication
BDs are making recommendations that The exam division said that its cover- “means the rule won’t be delayed
they have a reasonable basis to believe age of RIAs in 2020, a year in which the for further review, and investment
are in customers’ best interests and eval- RIA population continued to increase advisors now have a firm compliance
uating BD processes for compliance and “and the pandemic necessitated a mid- deadline of Nov. 4, 2022,” with 18
alterations made to product offerings. year shift to remote examining,” was 15%. months to modernize their marketing
John Polise, associate director The SEC completed 2,952 exams in fis- and advertising programs.
of the SEC’s National Broker-Dealer cal 2020, a 4.4% decrease from fiscal 2019.
and Exchange Program within the The growth of the advisory industry Washington Bureau Chief Melanie Waddell can
exam division, warned in early March “continues to escalate, and certainly the be reached at [email protected].

38 INVESTMENT ADVISOR APRIL 2021 | ThinkAdvisor.com