Kitces | Nerd's Eye View - News Highlights

News Highlight - New SEC Social Media Policy Makes Twitter The New Center Of Financial News?

nospam@example.com (Michael Kitces) — Tue, 09 Apr 2013 07:28:00 -0500

Last week, the SEC announced a change to its rules for social media, permitting companies to use social media channels like Facebook and Twitter to announce important and timely news, rather than "just" the company's website or via a news release. The companies just have to tell investors which social media outlets will be used in the future, so that investors have fair notice of where to tune in to get the latest information.

What's notable about the change is not just that social media will become a permitted channel, but that given the speed of social media, it may have just become the necessary go-to channel. In fact, last week may mark the turning point for when Twitter went from being "just" a social media platform, to being an essential primary source of key news and information!

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News Highlight - SEC Issues Request For Cost-Benefit Analysis Information on Uniform Fiduciary Standard

nospam@example.com (Michael Kitces) — Tue, 05 Mar 2013 09:01:00 -0600

In the next key step of the progression towards a uniform fiduciary standard for all brokers and investment advisers in the delivery of personalized investment advice, the SEC has issued a request for data and information to conduct a cost-benefit analysis on the potential consequences of implementing such a rule. The analysis is expected to include not only an evaluation of the potential benefits to the consumer, and costs to the industry (which become indirect costs to consumers as well), but also the prospect costs and benefits of various approaches to harmonize regulation and oversight between the rules-based broker-dealer system and the principles-based fiduciary RIA approach.

What the outcome of the cost-benefit analyses will be, though, is still anyone's guess. While fiduciary advocates tend to emphasize the weaker advice and conflicts of interest inherent in the broker suitability framework, it's less clear how to precisely quantify the financial impact of such conflicts, and the exact amount that consumers could benefit from a fiduciary standard. Yet the reality seems to be that demonstrating a cost-benefit analysis that favors consumers may be crucial if fiduciary rulemaking is to move forward.

On the other hand, a strong cost-benefit analysis may show surprising results as well - for instance, is it really true that the fiduciary model is more costly, or could it actually be less costly to administer as so many gray ambiguous areas that result in consumer complaints would simply be outright disallowed? If the fiduciary model is more costly, why are so many brokers breaking away to start independent RIAs that appear to be more profitable, not less? Why is it that the volume of complaints appears to be greater against suitability-based brokers than fiduciary-based investment advisers if fiduciary is really a "higher cost" model? Could the truth really be that a higher standard that eliminates ambiguity may actually result in lower costs to consumers?

Ultimately, the comment period will remain open for four months, so expect to hear a lot more about this issue as various organizations submit their own cost-benefit studies. And if you're interested, you can submit your own comments as well through the SEC's website.

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News Highlight - SEC Concerned About Hybrid Advisors With Outside RIA

nospam@example.com (Michael Kitces) — Tue, 26 Feb 2013 06:03:00 -0600

Late last week, the SEC announced its Examination Priorities for 2013, which provides some guidance on what the SEC views as the greatest issues for concern and focus, especially amongst its Investment Adviser-Investment Company (IA-IC) program that is responsible for examining nearly 11,000 Registered Investment Advisers (RIAs) along with 800 Registered Investment Companies (RICs, e.g., mutual funds). In addition to a usual array of focus areas, from monitoring the safety of assets, conflicts of interest, and marketing (especially regarding performance marketing), this year's announcement was notable in one other regard: the SEC specifically cited dually registered IA/BD advisors (i.e., "hybrid" advisors) as a new and emerging risk area, especially regarding how advisors make a determination of whether to direct a particular client to the brokerage account versus an investment advisory account.
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News Highlight - FINRA Backing Away From Push To Oversee Investment Advisers?

nospam@example.com (Michael Kitces) — Thu, 07 Feb 2013 09:39:00 -0600

In a surprising interview article just released today by Reuters reporter Suzanne Barlyn, FINRA Chairman and CEO Rick Ketchum goes on record stating that he sees "no sign [FINRA] can convince lawmakers in Washington to support a change in the way [investment] advisers are regulated anytime soon." Ketchum attributes this primarily to the leadership changes in the House Financial Services Committee after the 2012 election, as Representative Jeb Hensarling has taken over for Representative Spencer Bachus (it was Bachus who had put forth the 2012 legislation that was widely viewed as paving the way for FINRA to regulate investment advisers). The matter was further complicated by the lack of clear support from the SEC. The bottom line - Ketchum believes that continuing to push FINRA as overseer of investment advisers will make no progress in the foreseeable future, so it's backing off.
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