RIAs: Don't Wait for the Switch, Take Action

By the middle of 2012, advisers who posses assets under management ranging from $25 million to 100 million will be making the switch from residing under Federal regulation to State regulation. According to an AdviserOne article, advisers must take a proactive approach, and according to some reports prepare for states to be a lot tougher.

Many state regulators are saying this is not the case, and they are not trying to make it harder on advisers, instead they state they are happy to offer insight to help advisers comply with their new regulations, instead of having to impose hefty fines for non-compliance. Besides offering their guidance, state regulators also urge advisers to take action and make the switch sooner than later. Maryland Securities Commissioner Melanie Lubin, who is in charge of monitoring the switch for the North American Securities Administrators Association (NASAA), says that while “there are some different requirements between state and federal” regulation for advisors, nothing is “particularly difficult. They’ll have to focus on investment advisor representative registration,” ...It’s too soon to say which—if any—specific areas might present the most problems for advisors making the switch.”

Lubin offers two suggestions for all advisers making the switch: Number one is to make the switch to the state level of regulation sooner than later by applying for state registration first and then withdrawing from federal regulation, allowing enough time for regulators to completely finish the application process. Number two is if an adviser has any questions, they should not be afraid to reach out to their jurisdiction for clarification.

Linda Cena, Michigan securities director and chair of the investment advisor section at NASAA says that over half of states have implemented switch workshops to help advisers become acquainted with the new requirements and switch process. If you are unsure if your state has switch workshops, contact your jurisdiction and they can point you in the right direction.

Click here to read the complete AdviserOne article: “State RIA ‘Switch’ Warning: Don’t Procrastinate, Ask for Help”

SEC Redefines Insurance Suitability Qualifiers for Certain Products

According to an AdviserOne article the SEC decided to redefine the accredited investor standard that is used to determine whether or not someone is permitted to purchase insurance products that allow investors to invest in high-risk commodities, such as hedge funds.

The redefinition increased the required net worth for an investor to qualify to purchase high risk products. An individual becomes an accredited investor if they possess a net worth of at least $1 million dollars (not including the value of their primary residence).
 Before the SEC made their final adjustments to qualifying accredited investors, individuals could become an accredited investor if they themselves have a net worth or their joint net worth with their spouse was greater than $1million. This total could also be drawn from their primary residence, which is where the SEC found the flaw. Allowing people to add their primary residence into their net worth, because of the “inflated housing market,” encouraged marketing geared to individuals who were” house rich,” but did not understand the risky market products they were buying.

Accredited investors have a separate market opportunity than the everyday investor, allowing them to part take in purchasing uncertain products such as private placement life insurance (PPLI) allowing them to “ make hedge fund investments the same way that other insurance clients make mutual fund investments–through subaccounts of a variable universal life insurance (VUL) policy.”

Click here to read the complete AdviserOne article: “SEC Redefines Insurance Suitability Qualifiers for Certain Products”

Big Business to SEC: Stay Away from Money Market

According to a recent InvestmentNews article, twenty-three large corporations and big businesses including, the U.S. Chamber of Commerce, Johnson & Johnson, FMC Corp., and Tyson foods, wrote a joint letter reacting to SEC Chairman Mary Schapiro’s November mention of making money market reform a priority. Schapiro said that the SEC intends to issue a proposal “designed to prevent the investment vehicles from the kind of default that forced one of them to “break the buck” during the 2008 financial crisis.” She asserted that this proposal would become a tangible reality within the few months following her speech.

Schapiro said that the SEC’s move towards market reform would include creating a capital buffer that requires money market funds have an emergency source of capital, and a proposal to move towards a floating net asset value (NAV). The letter concludes that none of the involved parties agree with either the buffer or moving to a floating NAV. 

In their letter to Schapiro, the corporations and big businesses addressed their belief that there was no need for continued money market reform, in addition to those made in 2010. They explained that the financing from money market funds is important in everyday business and supports “daily cash management, inventory restocking, and expansion.”

The letter continued by stating “We firmly believe existing regulations ensure the continued stability and viability of money market funds, and that additional regulatory options being considered will have dramatic negative consequences on American businesses' ability to raise the capital necessary to restore economic stability and job creation.”

 Others big names involved in the letter include, CVS Caremark Corp., Kraft Foods Global Inc., Safeway Inc., and the Boeing Co.

Click here to read the complete InvestmentNews article: “Big business to SEC: Lay off money funds”

SEC Issues Fee Rate Advisory #5 for Fiscal Year 2012

Following Section 31 of the Securities Exchange Act of 1934, the Securities and Exchange Commission (SEC) worked with the Congressional Budget Office and the Office of Management and Budget to decide the annual fee adjustment. They announced on February 21, 2012 the fee rate that is applicable for most securities transactions will move from $19.20 per million dollars down to $18.00 per million dollars. The fee rate for security futures transactions will remain $0.0042 for each round turn transaction. The previous fee rates for fiscal year 2012, announced May 2, 2011 never became effective, and instead the SEC issued these revised rates following the Exchange Act amendments and requirements.

Click here to read the complete SEC order: Order Making Fiscal Year 2012 Annual Adjustments to Transaction Fee Rates

November 2011 CFP® Exam Update

The CFP Board announced updates for those who took the November 2011 CFP Exam. Exam results were mailed on Friday, January 13, 2012, and each result includes a Diagnostic Summary Report that compares the examinee’s results to the seven content areas, and concludes areas where the examinee fell short of expectations. All examinees can now also view their pass or fail exam status by logging onto their online CFP Board accounts.

Click here to view complete past and upcoming CFP Exam updates

FINRA Cut Advisers Social Media Slack, but Advisers Beware of Slacking Off

According to an InvestmentNews article, just because FINRA gave financial services professionals some leeway concerning reporting requirements on social media supervision and reporting standards, does not mean they are lenient in enforcing their remaining requirements for compliant social media use for broker-dealers and their registered representatives.

Updating their proposed communications rules filed with the SEC, FINRA announced that they would be excluding messages on Facebook, Twitter, LinkedIn and other social media platforms from the post-use filing requirements. This is a sign that FINRA may be shredding part of their strict, backdated reputation to make it easier for registered representatives to utilize social media as a valuable business channel for maintaining old and developing new business relationships.

Joseph P. Savage, Vice President and Counsel of Investment Companies Regulation at FINRA said “Finra recognizes that a member may face supervisory and operational difficulties if it is required to file an online forum post, given that the member will be supervising such communications in the same manner as correspondence.”

Representatives must be careful to recognize this does not apply to any other federal law or SEC rule already in place, and they must make certain that they have compliant content and record-keeping standards for all of their social media use. Two weeks after FINRA announced their update to their social media regulation, the SEC issued an alert “highlighting the risks that registered investment advisers face when using social media” because the variance of policy and regulation can differ between firms.

Social media is changing the financial services business and taking client expectations to a new level concerning virtual relationship building and the standards they hold their financial advisers to. Broker-dealers and investment advisers should utilize this valuable resource, as long as they ensure they have the proper compliance arsenal in place.  

Click here to read the complete InvestmentNews article: “A call for responsible social-media usage”