It’s been two years since Covid-19 shut down the world economy and permanently changed the way all of us live and work. In a special section in the March 21 issue, the InvestmentNews team explores the new challenges, and benefits, that resulted from the pandemic and how the new normal has affected the financial services industry for the long term.
Probably the biggest change to U.S. business culture during the pandemic was that most Americans worked from home rather than going into the office. For brokerages, that shift ushered in remote office inspections by Finra, something the industry wants to see continue in the new normal.
The Financial Industry Regulatory Authority Inc. allowed remote supervision from the beginning of the coronavirus outbreak and continued to extend the temporary relief through the end of this year. Now the broker-dealer regulator is considering allowing remote inspections as part of risk-based examinations.
“Fidelity continues to find remote inspections to be as effective as inspections previously performed on-site,” three Fidelity Investments executives wrote in a Feb. 16 comment letter. “Looking forward to the post-pandemic environment, we believe there should be a path forward to preserve remote inspections as an option for broker-dealers to inspections.”
Advances in technology have given firms the ability to oversee their staff no matter where they work, according to the Fidelity officials. Remote inspections would allow them “to continue providing their employees with workplace flexibility,” they wrote.
Sander Ressler is skeptical about making remote inspections the new normal. Ressler, managing director of Essential Edge Compliance Outsourcing Services, said using the approach for low-risk firms periodically makes sense.
But he cautioned that remote supervision should not become widespread. If it does, regulators are likely to miss brokerage malfeasance because the best information they dig up on violations comes from what they find on their own while on site rather than what firms give them electronically.
He used the example of a firm that has 15,000 registered reps. If even a tiny fraction of them — 15 — are violating the rules, it could cause significant harm to investors.
“If you don’t ever go into those offices, you won’t know who the 15 are,” Ressler said. “Do you know how hard it is to play hide-and-seek when two people are in different houses? [Brokerages] are just advocating a cost management exercise, not an effective risk management program.”
Ken Bentsen Jr., chief executive of the Securities Industry and Financial Markets Association, said the organization has been talking to Finra, the Securities and Exchange Commission and state regulators to promote remote inspections.
“We need to update the rule book to what the workplace is going to look like in the post-pandemic world … it’s just a reality that you’re going to have hybrid working,” Bentsen said in an InvestmentNews 3 Questions interview. “So much inspection today is done electronically as it is.”
More articles from the special section:
Fewer than half of Americans in their peak earning years feel on track for retirement, while many say limited financial knowledge and access to professional guidance are holding them back.
Meanwhile, Wells Fargo hauled advisors overseeing $825 million in the West Coast, while Wedbush has welcomed a seasoned professional from Stifel in California.
A bipartisan Senate push to lift the $184,500 earnings cap is gaining momentum as the program's 2032 insolvency deadline looms
For wealth firms willing to offer more integrated tax services have several options to solve for lack of expertise, seasonal strains, and other challenges around tax prep work.
Millennial workers retain coverage after switching employers more often than boomers did.
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
