New regulatory risk meter highlights advisor compliance hotspots

Cetera has unveiled a new resource designed to help financial advisors navigate the industry’s shifting regulatory landscape.

Combining enforcement data, customer claims, and insights into emerging regulatory issues, the Cetera Risk-O-Meter aims to provide a comprehensive and ongoing view of challenges likely to impact advisory practices.

"In today’s rapidly changing regulatory environment, being informed is not just important—it’s essential," Mark Quinn, director of regulatory affairs at Cetera, said in a statement. "The rules governing our industry are becoming more complex and stringent every year." 

Among several potentially transformative areas, the inaugural Risk-O-Meter’s called attention to the Department of Labor’s proposed retirement security rule. Otherwise known as the fiduciary rule, the DOL proposal has been staid by the hand of the courts but could, if enacted, alter standards and reshape the way advisors handle retirement accounts.

It also spotlighted the Federal Trade Commission's motion to restrict the use of non-compete clauses earlier this year. That was also halted by another legal challenge in August, but if implemented, it could affect hiring practices within the industry and reshape how advisors manage workforce contracts. Beyond that, Environmental, Social, and Governance disclosure requirements may add a new layer of compliance for advisors integrating ESG factors into client portfolios.

Higher up on the regulatory risk list are new worker classification rules by the DOL, which stand to impact employment practices across the advisory industry, particularly for those using independent contractor models. Beyond that, advisors may also need to prepare for potential “junk fee” legislation that could pressure firms to retool existing fee structures, as well as SEC proposals affecting pre-dispute arbitration agreements that, if enacted, could influence how advisors manage client relationships and handle disputes.

"Over the past three years, there has been steady regulatory pressure, with new issues emerging while foundational topics like worker classification and fiduciary standards remain constant," Quinn said.

While the Risk-O-Meter signals an overall increase in regulatory pressures, recent data show enforcement actions have remained relatively steady. The SEC issued 74 enforcement actions in 2022, compared to 66 to date in 2024. Similarly, Finra actions increased from 34 in 2022 to 52 in 2023, and stand at 34 so far in 2024.

Looking ahead, Cetera’s Risk-O-Meter says the industry is standing at a crossroads, with future regulatory priorities varying sharply depending on the outcome of the presidential election. A Democratic administration can be expected to focus on ESG standards and fiduciary requirements, while a Republican administration might focus on reducing regulatory burdens.

"As the regulatory environment continues to evolve, financial advisors must remain vigilant in their approach to compliance," Quinn said.