It was just five months ago that the advisory industry appeared destined for crisis. Markets broadly retreated. With that, asset values declined materially and revenues followed. Fear set in.But five months later, markets are closeto reaching pre-pandemic highs. Whatcrisis? The markets tell us all is good!
Not so fast. This is different. Thisis not a financial crisis. It is a healthcrisis that has caused financial despair.Although such despair may have, thusfar, been short-lived for the advisoryindustry, that doesn’t mean it’s gone,especially for those outside of our industry, many of who may be your clients.
Bankruptcy and business closures havebecome reality for many, and for others,such outcomes fearfully loom. So please,no complaints about less profits or smaller bonuses. Be thankful that we can work,pay our bills and keep our employees.
You were not concerned? Nonsense.How many of you called me aboutPaycheck Protection Program?
Those of us who scorned workingfrom home have now come to accept it,including yours truly, a road warrior forthe past 30 years. Moreover, many havefound they don’t need the lavish offices,and the high costs that come with it.Maybe it’s time to reassess needs whenthe current lease matures — something Iheard in 2000 and 2008-09.
Although I have not been on a plane
since March, and may not be until
next year, I remain fortunate. None of
my family members have suffered. All
staff remains employed (over 300), and
although a few have contracted the
virus, all have recovered. However, in
my small town, several have died, which
reminds me to remain vigilant.
AND REGULATORS HAVEN’T
And so must we all remain pandemic vigilant, and, yes, compliance vigilant. TheSecurities and Exchange Commissionand states have not taken a break.
SEC examinations continue at aseemingly aggressive pace. No, not on-site, but rather correspondence exams.Exams that can be protracted and go onfor six months or more.
And what is the SEC’s primary issue?How they can find a deficiency that willcause you to reimburse clients.
Have you misstated your fee schedule,
failed to disclose conflicts, miscalcu-
lated fees, failed to reimburse terminat-
ing clients, billed on account inflows,
while never correspondingly reducing
fees for outflows, subjectively enforce
a stated minimum fee, charge some cli-
ents for certain type assets/accounts,
but not others. The potential list goes
on. In addition, do you have policies/
procedures for elderly clients/financial
exploitation (i.e., trusted contact, etc.)?
The SEC is now including a series of
elderly client questions on recent exams.
Of course, many RIAs think they need
not be concerned about state regulators.
Really? How many firms have investment
professional employees who now are pro-
viding services remotely from a neighbor-
ing state, a state in which they are not
individually registered as an investment
advisor representative (IAR) of the firm?
Many IARs employed by or associ-
ated with both state-registered and SEC-
registered investment advisors have been
required to conduct business from their
home or other temporary office loca-
tion in the face of COVID- 19. If those
displaced IARs are not currently licensed
by the states where they are temporar-
ily providing advisory services, firms
should quickly analyze whether they
must license these individuals under the
respective and applicable state law.
One example: the PennsylvaniaDepartment of Banking and Securitiesrecently announced that as of Aug. 31,2020, it would end its “grace period”for those IARs “who were displaced forteleworking to their PA home addressesduring COVID- 19” if they were previously unlicensed.
Other state regulatory bodies thathave issued similar guidance and restrictions for IARs displaced from their principal office because of COVID- 19.
Thomas D. Giachetti is chairman of theInvestment Management and SecuritiesPractice Group of Stark & Stark, a law firm. Heis a regular contributor and can be reached at
THE COMPLIANCE COACH
By Thomas D. Giachetti
Remain Vigilant About Regulations
During the Pandemic, Too
The SEC and its state brethren recently have come down on some
displaced advisors, so beware.