DOL Delays Enforcement of Fiduciary Obligations on Rollover Advice; NASAA 2020 Enforcement Trends; FINRA Encourages AML Program Reviews; Regulatory Update for November 2021


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A Cybersecurity Reminder from Foreside’s Chief Risk Officer, Samantha Swift

As we say goodbye to October, Foreside’s Chief Risk Officer reminds us to carry forward the purpose of Cybersecurity Awareness Month – to promote the importance of cybersecurity (hygiene, best practices, and vigilance), to raise awareness of cyber risks, and to empower the public to be safer and more secure online. Visit CISA ( for valuable (and free) resources to help you reduce your exposure to these threats, which bad actors continue to exploit during this crisis period. Do your part and #BeCyberSmart!

For Investment Advisors

State and federally registered advisors should take note since states have the right to investigate firms and their representatives to protect their residents. Here are a few of the headlines from the report:

  • Treat Client Complaints Seriously. State regulators initiated almost the same number of investigations as complaints received (Complaints received 5,498 vs. investigations initiated 5,501). Unhappy clients can take their complaints to a state regulator, who has the authority to investigate both the firm and any named representatives. Firms that can show documentation of the internal review of the client’s claims along with a well-reasoned response establish credibility with regulators.
  • States Hold the Key to an IAR’s Livelihood. In 2020, state regulators issued 4,413 license sanctions, including the withdrawal of more the 3,600 license applications and 801 other licensing sanctions, including barring, denying, revoking, or suspending the licenses of individuals and firms. Firms should pay attention to basic blocking and tackling, including updating disclosures on Form U-4 and Form ADV and performing routine background checks to verify the completeness and accuracy of information provided by a potential employee. Review state licensing requirements carefully before applying for registration. If an IAR’s record contains issues that can be resolved before submitting a new application, then work on resolving them to avoid being denied registration.
  • Know Your Role in Protecting Senior and Vulnerable Investors. Seniors remain prime targets for fraudsters, and states are stepping in to protect them. According to NASAA’s report, 32 jurisdictions have enacted rules or legislation that mandate reporting to a state securities regulator and state adult protective services agency when financial services professionals have a reasonable belief that an elderly or vulnerable client is being financially exploited. Some states also allow advisors to delay disbursements when exploitation is suspected. Firms should understand their obligations under state law and provide training to employees on how to detect, prevent, and report financial exploitation of seniors and vulnerable adults. Check out the map maintained by Bressler and find out more about your reporting requirements under state law. Additionally, encourage clients to name a “trusted contact,” which gives firms the ability to discuss the situation with a trusted third-party when financial exploitation is suspected, an approach endorsed by NASAA, FINRA, and the SEC.
  • Advisors Take Care: Private Offerings Provide Fertile Ground for Fraudsters. NASAA’s report warns that bad actors continue to exploit the lack of federal and state oversight of private offerings. Consequently, state regulators opened 196 investigations and brought 67 enforcement actions involving misconduct tied to private offerings in 2020. Firms wanting to provide private placements to their high-net worth clients should develop a solid due diligence process both before and during the life of the investment. Failure to understand and monitor these riskier investments can lead to a lengthy and sometimes costly state regulatory action. State securities regulators follow nationwide fraud cases and will investigate firms and IARs that sold the securities at issue. Contributed by Jaqueline Hummel, Managing Director.
  • SEC Regional CCO Virtual Outreach. The SEC’s regional office in Chicago held a CCO Outreach webinar on September 22nd. The agenda focused on Form CRS and highlights included:
    • Context Surrounding Recent Form CRS Enforcement Actions. Well-meaning firms may take some comfort hearing that recent Form CRS enforcement actions did not appear to result from minor technicalities. Instead, they began with the Department of Examinations’ (“Exams”) screening for advisors and broker-dealers that did not file Form CRS by the June 30, 2020 initial filing deadline but appeared to be subject to that requirement based on other filed information with the SEC. Those firms that failed to take proper corrective action or whose activities were viewed as highly deficient have found themselves in enforcement hot water. (See Foreside’s September 2021 Regulatory Update and the SEC 7/26/21 Press Release for more details about these actions.)
    • Expect Exams Scrutiny of Form CRS to Continue. Exams “is not finished holding firms accountable for non-compliance” with Form CRS regulatory requirements. As we move further away from last year’s initial filing and delivery deadlines, expect Exams to expand its focus and look deeper into the substance of disclosures provided. Firms should ensure Form CRS is formatted, filed, and delivered properly and continually monitor the quality of their disclosures, including their consistency with other firm disclosures like Form ADV. Panelists noted during the presentation that conflicts between these documents are commonly found in examinations. Firms are also cautioned to take care when determining disciplinary disclosures for Form CRS, where the instructions differ from what is required on Form ADV Parts 1 and 2.
    • Illustrative Scenarios for Redelivery of Form CRS. Panelists analyzed several scenarios, submitted as questions ahead of the seminar, asking when firms are (and are not) required to redeliver Form CRS. Although no new interpretations were necessarily shared in this discussion, the scenarios and accompanying analysis of what factors could turn a “no redelivery required” answer into a “yes” may be useful case studies for training materials.

As of the date of this newsletter, a recording of the Chicago Outreach is not yet available on the SEC’s site, but keep an eye out here for updates. The New York regional office hosts its own CCO Outreach event on November 2nd, with a broader agenda. Find details here. Contributed by Cari Hopfensperger, Senior Director.

For Broker-Dealers and Investment Advisors

  • DOL Agrees to Back Off on Enforcement of Compliance with ERISA Fiduciary Obligations for Rollover Advice until January 31, 2022. The Department of Labor (DOL) granted a reprieve for investment advisors that recommend IRA rollovers to ERISA plan participants from compliance with the documentation and disclosure standards imposed by Prohibited Transaction Exemption 2020-02 (“PTE 2020-02”). In December 2020, the DOL adopted PTE 2020-02 to allow investment advisors and broker-dealers to receive otherwise prohibited compensation, including commissions, 12b-1 fees, revenue sharing, mark-ups, and mark-downs in certain principal transactions. Although this seemed like good news, the DOL significantly changed its interpretation of the “five-part fiduciary test[[1]]” in the exemption’s preamble. As a result, the new definition of investment advice under ERISA now includes a recommendation to a plan participant to roll over his or her assets from the plan to an IRA. This is a significant change because, in the past, the DOL did not consider advice to roll assets out of an ERISA plan as fiduciary advice subject to ERISA.

As an ERISA fiduciary, an advisor cannot receive compensation for advising a plan participant to roll over his or her 401(k) assets into an IRA managed by that advisor since this is prohibited under ERISA. Unless, however, the advisor complies with a prohibited transaction exemption, such as PTE 2020-02.

The exemption went into effect on February 16, 2021, but the DOL and the IRS originally agreed to extend their non-enforcement policy until December 20, 2021. The policy has been extended until January 31, 2022, for “investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that are exempted in PTE 2020-02.” Contributed by Jaqueline M. Hummel, Managing Director.

  • State of Ohio Updates
    • Elder Abuse Reporting. Mandatory reporting of suspected elder abuse by investment advisors (RIAs) and investment advisor representatives (IARs) has been required since 2019 in Ohio; however, revised rules require new reporting by IARs and permit delaying transactions in certain cases. Additionally, Ohio saw a significant increase in elder abuse cases reported during the pandemic. As a result, the Ohio Department of Family Services launched a new elder abuse awareness campaign to educate and remind the public how to report suspected abuse. In Ohio, anyone can use the State Referral Line (855) OHIO-APS (855-644-6277) to report cases of suspected abuse. For information on Ohio and other states, consult the Bressler Senior and Vulnerable Investor Issues Map for up-to-date requirements each state has for protecting our senior and vulnerable investors.
    • Ohio Securities Salesperson and Investment Adviser Representative Registration Rule Changes Beginning September 30, 2021.
      The State of Ohio (OH) now requires qualification exams for registered representatives (RR) and IAR registrations requested on Form U4 submissions. RR registrations will require reps to pass the Series 63 exam, while IAR registrations will require passing the Series 65 exam. This rule change will not affect individuals who are currently registered or eligible to re-register in Ohio. For additional information on the rule changes, visit the Ohio Department of Commerce’s Proposed Rules Contributed by Doug MacKinnon, Director.
  • The 2022 Renewal Program is Underway. November marks the beginning of the annual renewal cycle for broker-dealers, registered representatives, investment advisors, and investment advisor representatives (IARs).
  • Mark your calendar with these important dates:
    • November 8, 2021 – Preliminary Statements available on IARD and FINRA Gateway.
    • December 13, 2021 – Payment Due Date when Preliminary Statements must be paid in full.
    • December 26, 2021 – CRD/IARD System Shuts down at 6:00 PM Eastern Time.
  • Encourage registered representatives and investment advisor representatives to review their personal industry records via the Financial Professional Gateway (FinPro), BrokerCheck, or IAPD;
  • Review your roster of registered representatives and/or IARs for inaccuracies or deficiencies;
    • Broker-dealer firms may begin to submit post-dated Forms U5 and BR terminations as early as October 18th. Starting November 1st, firms can initiate Forms BD-W and ADV-W filings with a termination date of December 31st.
  • For more detailed information about the 2022 Renewal Program, including the complete timeline, payment methods, helpful tips, and FAQs check out the following:

FINRA Annual Renewal Overview

IARD Renewal Program Overview

NOTE: Failure to remit payments timely will result in late fees. Additionally, jurisdictions may automatically terminate registrations, resulting in the firm’s inability to conduct securities business in those jurisdictions as of January 1, 2022. Contributed by Cari Hopfensperger and Rochelle Truzzi, Senior Directors.

For Broker-Dealers

  • FINRA “Encourages” Members to Consider Updating Their AML Programs. On June 30th, FinCEN issued the first Anti-Money Laundering and Countering the Financing of Terrorism National Priorities policy to combat terrorism and other illicit financing. The identified priorities are (1) corruption, (2) cybercrime, (3) terrorist financing, (4) fraud, (5) transnational criminal organization activity, (6) drug trafficking, (7) human trafficking, and (8) proliferation financing. FinCEN intends to issue regulations at a future date (December of 2021) that will specify how firms should incorporate the priorities into their risk-based AML program. In the meantime, FINRA encourages firms to begin considering the potential impacts of the priorities, such as whether updates to red flag procedures or technology used to monitor and investigate suspicious activity may be needed. Firms can also expect upcoming examinations to touch upon these preliminary efforts to understand and plan for updates in light of FinCEN’s published priorities and should take care to document this review during their next AML Program review. Contributed by Rochelle Truzzi, Senior Director.
  • FINRA, NASAA, and SEC Urge Investors to Establish a Trusted Contact to Increase Investor Protection.
    FINRA and the North American Securities Administrators Association (NASAA) recently joined forces with the SEC on this new campaign, encouraging investors to provide a trusted contact for their accounts. Since the release of FINRA Rule 2165 (Financial Exploitation of Specified Adults) back in 2018, investors have been reluctant to provide their broker with a trusted contact person, stating concerns about privacy and control over their assets. This initiative is intended to help investors understand the benefits of naming a trusted contact person and the limitations of a trusted contact person’s authority on an account. This is a good piece for brokers and advisors to share with their clients who may be leery about designating such a person. Contributed by Rochelle Truzzi, Senior Director.

[1] The five-part test defines an ERISA fiduciary as someone who, for a fee, (i) provides investment advice to an ERISA plan, plan fiduciary, plan participant, or IRA owner (ii) on a regular basis (iii) pursuant to a mutual agreement. The advice must (iv) serve as the primary basis for an investment decision, and (v) be individualized based on the particular needs of the plan, plan participant, or IRA owner.

Photo Credit: Photo by Priscilla Du Preez on Unsplash.

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