InvestmentNews Editorials

Increase of enforcement cases against RIAs, advisers suggest compliance may need a boost

State actions against advisers outpaced those against brokers in 2017

Nov 3, 2018 @ 6:00 am

When it comes to stereotypes about advice industry participants, investment advisers often wear the white hats. But the 2018 enforcement report from state securities regulators may put a dent in that image. The report shows that in 2017, for the first time, state enforcement actions against investment advisers outpaced those against brokers.

According to the North American Securities Administrators Association, there were 377 state enforcement actions last year that named investment advisers and RIA firms, up 32% from 2016, while 270 actions named registered representatives and their brokerages, down 11% from 2016.

Advisers' image as the good guys has been disputed before, most notably by former Securities and Exchange Commission member Daniel Gallagher, who argued back in 2014 that if the SEC monitored investment advisers as closely as it did brokers, it would find the same number of bad actors.

(More: 7 ways states got tough with unregistered individuals and firms in 2017)

"It is impossible to separate the fact that we find many more broker-dealer violations than investment adviser violations from the fact that, thanks to the assistance of the SROs, we examine a greater proportion of broker-dealers than investment advisers," Mr. Gallagher said in a speech, referring to the Financial Industry Regulatory Authority Inc.'s role.

Of course, some of the change in enforcement statistics may just reflect the relative numbers of RIAs and brokerages; the number of RIA firms is on the rise, while the number of brokerages has been declining.

Moreover, in recent years, more of those RIA firms have come under state oversight. A provision in the Dodd-Frank financial reform law moved RIAs with less than $100 million in assets to oversight by their state regulator versus the SEC. Previously, the states had regulated firms with less than $25 million in assets. The number of state-registered advisory firms grew 21%, from 13,799 in 2008 to 17,534 in 2017.

Another possible factor driving the rise in enforcement actions could be RIA firms' sometimes less-stringent compliance efforts. In InvestmentNews' story about the NASAA statistics, senior reporter Mark Schoeff cited securities attorney Eleonora Zlotnikova's observation that smaller RIAs are likely to have much less robust compliance operations than broker-dealers.

The NASAA annual report also shows the extent to which fraudsters prey on seniors; state regulators took enforcement actions last year involving more than 1,100 senior victims.

The report noted that 18 states have enacted versions of NASAA's model rule aimed at protecting seniors from financial exploitation. The legislation mandates that advisers and representatives report to regulators if they spot an attempt to defraud a vulnerable adult. The states with the law in place have received more than 500 reports, according to NASAA, and those reports led to investigations and enforcement action.

To the extent that RIA firms are heavily involved in retirement advice, the push to end financial abuse of older people could increase their exposure to enforcement actions.

No matter what underlying factors may have influenced the numbers in NASAA's report, the fact that state enforcement actions against advisers jumped almost a third in just a year should serve as a wake-up call.

Advisers and RIA firms should be reassessing their compliance efforts to be sure they're running a tight ship and be willing to invest some money to upgrade compliance if they realize it's subpar. They should be keeping an eye out for the types of infractions regulators are likely to focus on. And they should be aware of the possibility of financial exploitation when working with older clients and report it promptly when they spot it.


What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Mar 14



InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video


Regulators' gloves are coming off with cybersecurity. Put up your dukes with these tips

Updated guidelines and some of the first-ever rule enforcements signal that regulators are getting serious about holding firms accountable for data breaches, according to special projects editor Liz Skinner and technology reporter Ryan Neal.

Recommended Video

Keys to a successful deal

Latest news & opinion

Finra focuses exam priorities on investor-protection threats

Online distribution of private placements pops up; exchange-traded products cause suitability worries.

10 public companies that boosted their ESG ratings in 2018

These 10 companies increased their environmental, social and governance scores last year.

Blackrock exposed data on 12,000 financial advisers

The data appeared in three spreadsheets, linked on one of the New York-based company's web pages dedicated to its iShares exchange-traded funds

Advisers throw cold water on FIRE movement

Millennials love it, advisers don't: Turns out, extreme early retirement is a suitable goal for almost nobody.

10 universities with the most billionaire alumni

These 10 American schools have the greatest number of alumni who are billionaires.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print