What should RIAs have on their regulatory radar right now?

It has been several weeks since Paul Atkins, President Donald Trump's favored nominee to head the Securities and Exchange Commission, made his return to the agency as its new chair.

A few weeks after Trump's victory at the polls on November 5, Atkins, who previously served as an SEC commissioner from 2002 until 2008, emerged as the odds-on favorite to succeed Gary Gensler, whose approach to investor protection and enforcement resulted in millions of dollars in penalties spanning multiple areas including cryptocurrency trading, off-channel communications, and AI.

At the Senate hearing to confirm his nomination, Republican lawmakers were supportive, praising Atkins' credentials and comparatively deregulatory philosophy, while detractors from the other side of the aisle aired concerns about his various conflicts of interest. In the end, he was confirmed in a 52-44 vote that largely went along party lines.

While Atkins' leadership at the SEC represents a turning point for regulation, Lisandra Wilmott, general counsel at Savvy Wealth, says it shouldn't be a reason for RIAs to get complacent.

"RIAs should never feel an inflated sense of confidence around the idea that a change in SEC chairman would allow them to loosen up the reins on their compliance or surveillance practices," Wilmott, who joined Savvy Wealth from Pathstone in April, told InvestmentNews. "That said, it’s safe to say that with every change of chair there are new and very different areas of interests and priorities."

For better or worse, the SEC under Gensler's leadership placed recordkeeping and electronic communications highly on its enforcement agenda. As one of the final actions before Gensler's resignation on January 20, the SEC imposed a combined $63.1 million in penalties on 12 investment advisor and broker-dealer firms for what it said were shortfalls in monitoring off-channel communications and other failures.

So far, Atkins has not come out with an official stance on off-channel communications. Nevertheless, Wimott says RIAs would be wise to prepare for SEC examiners to focus on those as "low-hanging fruit" in enforcement.

"You want to make sure that you continue robust surveillance of all electronic communications while prohibiting the use of off channel communications that cannot be tracked," she says. "This will ensure the protection of your firm’s reputation, your client’s financial interests and trust in your advisors." 

When it comes to cybersecurity, Wimott says bad actors have new opportunities to target investors due to advances in AI and other emerging technologies, including large language model platforms, bot investment, and trading apps. Given that, she says it's critical for firms to either add personell who can understand and head off those risks, or engage with vendors who have been fully vetted and are capable of helping to manage them.

"Similarly, as firms attempt to use AI to find efficiencies in their business, they should conduct robust due diligence of these AI tools and vendors," she says. "They should further ensure that they have programs in place to train personnel and clients on detection of fraud tactics, in particular as it relates to the handling of client funds, their personal information and firmwide trade secrets." 

She added that there's a likelihood of looser enforcement around private investments under the new administration, with Atkins pointing to the sophistication among investors who deploy capital in the space. The thinking goes that since most private investments come with certain net worth minimums, clients who enter that space are not prone to the same vulnerabilities as the average retail investor.

"While completely hands-off oversight isn't an option, the SEC will continue to focus on whether recommendations to invest in these private investments were reasonably believed to be in the client's best interest," Wilmott says.

While RIA firms should maintain and continue improving their current policies and procedures, Wilmott argues they should also be focused, where applicable, on their usage and advice around digital assets such as crypto, how they protect clients' personal information, use of AI, and fraud detection practices to further align with new SEC priorities.

Based on other statements from the Atkins SEC – including plans to recalibrate its resources and staff and do a cost-benefit analysis when considering new rules and enforcement areas – Wilmott says the new administration may be expected to deploy a leaner, more focused team to enact its key priorities for 2025. 

"Many of these priorities will be tackled through data-driven initiatives that require less human capital, with a stringent analysis applied to cases involving investor harm or market manipulation," she says.