Going for Gold? Be Sure to Eat Your Wheaties!

Anniversary Letter

Before we get into our Anniversary Letter, a quick announcement.  Lisa White joined The Consortium in December 2023 and brings 20+ years of compliance and legal experience within the life and health insurance, Medicare/Medicaid, annuity, and financial services industries. Prior to joining The Consortium team, she held positions focused on retail and institutional broker-dealer, investment advisor, investment company and corporate compliance matters. 

While some of you have already had the opportunity to meet/work with Lisa over the past months, we are taking a metered approach to phasing Lisa into everything here at The Consortium.  If you haven’t yet had the opportunity to work with Lisa, you will soon enough.  We are absolutely excited about the depth of knowledge and expertise that Lisa brings to the team as we work towards growing our compliance support and services!

Going for Gold? Be Sure to Eat Your Wheaties!

The Olympics begin in a few weeks uniting the world’s elite athletes to compete for medals that symbolize their sporting achievements. This got us thinking about the similarities between Olympic athletes and compliance professionals. What?! Have we lost our mind?! Well, keep reading as we review this prior regulatory year and reflect on how compliance truly embodies the qualities of Olympic athletes!

The Judges’ Table

The SEC is a demanding official in our industry, seldom awarding a perfect 10, as evidenced by their enforcement and examination efforts. In 2023, enforcement actions saw a 3% increase from 2022, with the SEC imposing the second-highest level of penalties totaling $4.9 billion. Penalties increased due to heightened “sweep” exams, uncovering violations concerning off-channel communications, marketing and advertising, material non-public information, and crypto assets. Emphasizing its role as the “cop on the beat” to safeguard investors, the SEC assesses its impact through enforcement results.

The Enforcement Division has openly declared its objective of imposing higher penalties to discourage misconduct and enforce accountability. The Director emphasized that adhering to securities laws is ultimately less expensive than violating them. Unfortunately, this approach sometimes leads to “regulation by enforcement,” causing frustration among compliance professionals who genuinely strive to navigate and implement the plethora of rules often filled with ambiguous language.

Rules (Proposed and Final) of the Game

The SEC continues its rapid pace of updated and new rules, so prepare yourself for a marathon race. The past year presented several hurdles to overcome.

Technology remained a focal point for the SEC, particularly regarding digital engagement practices involving Crypto Assets, AI, and Predictive Data Analytics. A Cybersecurity Rule was finalized for public companies, with a related version proposed for RIAs. Additionally, the Internet Adviser Exemption was modernized for the first time since its implementation.

Other regulators have tipped their toe in the RIA pool with rules that crossed into the investment adviser lane such as FINRA’s T+1 settlement transition and the creation of the remote office supervision/residential supervisory location (RSL) program. States securities regulators continue to implement the Investment Adviser Representative continuing education requirements introduced by NASAA. The US Treasury Department resurfaced its proposed AML rule for RIAs and the SEC has indicated that AML will be a target area for broker-dealer examinations. The NAIC’s Annuity Suitability “Best Interest” model regulation continues to capture adviser’s attention. Last, but not least, the FTC’s ban on non-compete clauses may impact many financial services firms.

Even the regulatory bodies are increasing oversight within their own teams. The CFP Board reviewed its procedural rules for investigating misconduct and enforcing ethical obligations. Similarly, the SEC addressed ethics rules concerning securities trading by commission staff.

Privacy and Identity Theft remain an issue for the industry. Imposter scams grew in 2023. FINRA and the SEC published alerts to proactively warn firms and investors. FinCEN and the SEC jointly proposed a Customer Identification Program for RIAs. And the SEC’s adoption of Reg S-P amendments emphasizes their expectations for protecting client data.

In the marketing and advertising arena, the SEC signaled this will be a major focus for examinations for the foreseeable future. Two years after the Marketing Rule‘s implementation, we are now seeing enforcement actions in areas such as hypothetical performance and AI claims. RIAs and BDs are also getting fined for violations related to the use of social media influencers, specifically concerning endorsement, testimonial, and third-party rating requirements.

We’ve seen the Private Funds Rule and Corporate Transparency Act vacated by the courts. Furthermore, the Supreme Court just dealt a blow to the SEC’s power ruling an enforcement action seeking civil penalties violated a defendant’s right to a jury trial and the longstanding Chevron doctrine giving federal agencies power to interpret the laws they administer was struck down. We wonder if this is a signal of overreach to the regulators? Will additional rules get overturned? Time will tell and we will be watching.

What should you pay extra attention to? Reg BI enforcement continues and will be an SEC exam priority into 2025. Investigations and fines related to off-channel communications have intensified. Ensure your firm’s staff understand the acceptable channels for all internal and external communications with advisers and clients. The DOL’s Retirement Security Rule and PTEs are currently facing legal challenges. However, regardless of the outcome, some form of the rule will remain in effect, so it is important to become familiar with it.

But wait there’s more…the SEC Chairman has requested the Agency consider modernizing the Custody Rule which was originally adopted in 1962 and last amended in 2009. Whew…we’re out of breath and need a time out! How do compliance professionals reach the medal podium? Train like any world class athlete would. Have stamina and determination. Exercise daily to maintain a strong compliance program built on solid policies and procedures, reinforced with adequate staff training and periodic testing. Be a good sport. Play fair, show integrity, and follow the rules. Remember, as the legendary Olympic athlete Mark Spitz once said, “If you fail to prepare, you’ve prepared to fail.”

Have a safe and enjoyable 4^th of July, everyone!

–Todd Sakoda
–John T. Carr
–Lisanne M. Butterfield
–Lisa White

The Consortium has been lifting the burden of compliance for advisors since July 4, 1989.

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If you are the Owner, CEO, President, Chief Compliance Officer – even the person in charge of marketing – you have a burden to comply with the securities laws. Our team of Professional Weightlifters has an array of compliance services and resources to lift that burden off your shoulders.

If you need a compliance partner providing boots on the ground support, our on-going consulting services may be the solution for you.

If you’re looking for cost effective ways to stay in the loop, checkout our regular publications:

If you are a do-it-yourself type person, we offer a number of compliance resources and programs:

RIA Fast Track Program

Includes compliance resources and consultations to get your operations up and running. Designed as a start-up service for new RIA firms, it is a part do-it-yourself and part “Ask the Expert.” If you are creating a new RIA, contact us for details.

Learn More About the Program

RIA Pump It Up Refresher Course

Includes compliance resources and consultations to get your operations in tip-top shape.  Designed to lift the burden of compliance off your shoulders in an efficient and economic manner, it is a part do-it-yourself and part “Ask the Expert.”  If you need to dust off your compliance files, contact us for details.

Compliance Resources

Both educational and easily customizable to your practice are available for your use.

View Resources

If you need a compliance partner providing boots on the ground support, our on-going consulting services may be the solution for you.

• Our Professional Weightlifters are available to help you stay on top of the compliance environment and help you remember all those compliance do’s and don’ts.
• Need more time in your day? We assist you with the implementation of your compliance responsibilities.
• Contact The Consortium to see how we can be of assistance to you: todd@liftburden.com or (971) 801-1346.