With enforcement actions plummeting, is the SEC losing its regulatory zeal?
When Paul Atkins returned to the SEC this year to serve as its chair, he called for a “new day” — one, he said, in which “policymaking will be done through notice and comment rulemaking, not through regulation by enforcement.”
What the SEC will do any given year is always anyone’s guess. But the agency usually tips its hand a bit by publishing a list of its examination priorities. This year’s release stood out both for its lack of any mention of cryptocurrencies as well as the new interest it shows regulators are taking in mergers and acquisitions among RIAs. The priorities list also struck an industry-friendly note with Atkins’ pledge that the SEC won’t use its periodic examinations of firms as a “gotcha exercise.”
On the side of topics appearing for the first time, the SEC says it will be paying particular attention to the recurring phenomenon of big firms buying up smaller players in the RIA industry. Schleppegrell of Morgan Lewis said one priority is making sure that clients of acquired firms can transfer their assets and accounts over to the new owner without operational errors or other hiccups.
Lori Weston, the head of compliance at the regulatory consultant STP Investment Services, said advisors, of course, are always under the fiduciary obligation to do what’s best for their clients. With M&A, that means any pondered acquisition deal has to fall demonstrably in line with client interests.
For that reason, asset management fees are likely to be a subject of concern. Some firms, Weston noted, have a practice of collecting fees in arrears, while others bring them in in advance.
“Say it’s the end of the quarter, and I just paid for the management that they did for the last three months,” Weston said. “And now I’m going to be hit again right away with a new fee, because this new firm charges in advance. It feels like a double whammy to me. So these kinds of things — advisory fees, the terms of advisory fees — are another sticky area.”
Read more in Financial Planning.
