From the regulator’s point of view, advisors are charging a fee for clients’ investment accounts that have a large percentage of cash over an extended period of time. Regulators don’t care if the market went up or down. They care that the financial advisor is charging a fee and — because compliance documentation was missed in the pandemic scramble — they can’t prove they’re doing anything to earn it.
I know I already said this above, but it can’t be stressed strongly enough: document, document, document. Unfortunately, compliance has gotten complicated enough that if you don’t have solid RIA compliance software to help you spot, remediate and document issues like these, you should get some.
Hortz: What guidance and recommendations have the regulators been providing around conducting business during the coronavirus pandemic?
Bartine: Some regulators are making it easy on wealth management professionals to know what the regulators are thinking regarding the pandemic. I have found Finra’s COVID-19 site to be the most comprehensive and up to date, but other useful information is available.
The SEC’s COVID-19 Response FAQ is a resource for SEC-registered RIAs and investment companies.
The NASAA COVID-19 Regulatory Response Overview provides links to each state regulator’s COVID 19 pandemic guidance for financial advisors, as well as other useful information for state regulated RIAs.
Finra provides a rules and guidance page for the COVID-19 pandemic. It is a comprehensive resource that includes up to date news from Finra regarding regulatory response to the pandemic.
Beyond the above resources, I recommend CCOs keep their ear to the ground for regulatory news about the pandemic, and work with a competent compliance consultant or attorney who is sending out regular updates. The latter part being a critical time saver, as these professionals are staying on top of pandemic-related regulatory issues so they can alert their clients as needed.
Hortz: What are your thoughts or concerns on applying some of these guidance recommendations?
Bartine: This is me being a broken record, but it really is key — you have to document your compliance-related activities. Getting compliance done right during the pandemic is going to be hardest for firms that did not already have a strong culture of compliance and good compliance software in use by everyone in their company. Dealing with a pandemic is a tough time to have to get your house in order, but if your house is not in order now, you definitely need to get help.