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SEC’s Marketing Rule Remains Top RIA Compliance Concern

The new rule from the commission was the “hottest” topic for the second straight year in the Investment Adviser Association’s annual compliance survey, with ESG concerns cracking the top three for the first time.

The Securities and Exchange Commission’s marketing rule for advisors remains the industry’s most pressing compliance topic, with nearly eight out of 10 respondents calling it their top concern in a new survey from the Investment Adviser Association.

This marked the second year in a row that advertising and compliance was named the chief concern for compliance professionals in the IAA’s annual Investment Management Compliance Testing Survey. In total, 78% of respondents put the topic above all others in their list if concerns, a 20 percentage point boost from the previous year (the IAA’s published the survey for 17 years).

According to the results, cybersecurity was the second hottest topic with 67% of respondents, while climate change/ESG entered the top three for the first time, with 50% percent of respondents citing it as a concern.

“Once again, no survey respondents reported material compliance violations due to the BCP/pandemic this year—evidence of strong compliance programs and effective business continuity plans,” the survey read.

In addition to the focus on cybersecurity, advertising and climate change, compliance professionals responded that they focused on conflicts of interest, fee calculation, private funds regulation, digital assets, insider trading, valuation and surveillance for advisors’ electronic communications.

Nearly 70% of respondents expected their firms to meet compliance with the SEC’s new marketing rule on or shortly before its Nov. 4 compliance date (after it went into effect in May of last year), and at 92%, they overwhelmingly expected not to use more social media for marketing purposes in light of the rule. In implementing the new rule, 61% of firms found they needed to review their process for reviewing marketing materials, while 56.5% needed to invest more in training to comply.

The IAA found about 36% of respondents’ firms had a third-party consultant conduct a mock SEC exam over the past year (while 29% answered they did not), and almost 65% had found compliance issues that were not “deemed to be material,” according to the survey. More than eight out of 10 respondents said their firm had undergone an SEC exam in the past five years. 

An overwhelming majority of respondents said their firms did not use any digital engagement practices that included social networking tools, notifications via text or email (i.e. push notifications on mobile devices) or chatbots. 

According to the survey, most of the industry is still teleworking in the pandemic’s aftermath; only 13% of respondents said they’d fully returned to the office, while 73% of firms reported some or all of their employees were still working from home. However, nearly 93% of respondents had not witnessed an increase in compliance violations as a result of teleworking.

The IAA also inquired about the impact sanctions (such as the restrictions passed against Russia after it invaded Ukraine) had on firms. About 36% of firms said such information wasn’t relevant to their firms, while nearly 35% said they collected the information “internally.” To ensure compliance, 28.8% of firms said they used an “automated front-end system” to prevent investment in sanctioned countries, while lower percentages reported they used a manual front-end system or a manual check to ensure no sanctioned entities or individuals were clients.

The survey received responses from compliance professionals at 425 different firms, with 21% of firms managing less than $1 billion in assets, while 41% managed $1 to $10 billion and 37% managed more than $10 billion. In total 42% of respondents’ firms had between 11 and 50 employees, which largely matched industry data on the average firm size, according to the IAA.

TAGS: Industry
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