What's coming for RIAs from Washington: New regs

New and significantly different regulations in the areas of retirement plan rollovers and marketing are some of the changes coming soon from Washington for registered investment advisers, industry lobbyists told attendees at Tuesday’s InvestmentNews RIA Summit.

As spending bills grind through Congress, tax changes are inevitable too, but the Summit panel’s capital insiders, like everyone else, are waiting to see what the ongoing political maneuvering will bring.

On the regulatory front, two major changes — one imminent and one that will take effect next year — were touched on: new fiduciary rules regarding advice on plan rollovers coming in December, and sweeping new rules that overhaul the framework for RIA firm marketing and solicitation, which go into effect in November 2022.

Bradford Campbell, a partner at Faegre Drinker and a former assistant secretary of Labor, said many firms are not yet ready to meet the new requirements that become effective on Dec. 21. The new Labor Department rule requires that advisers who recommend rollovers must justify and explain the benefits, costs and all conflicts of interest associated with the change, including the adviser’s compensation if he or she will be providing advice once the rollover is complete, he said.

“To do a rollover, everyone needs a Prohibited Transaction Exemption 2020-02, which has requirements like Reg BI, but it’s not exactly the same,” Campbell said. “Even the largest firms, which are spending lots of money to meet the deadline, are scrambling. And smaller RIAs may not realize what they have to get done by then.”

The new marketing rules coming in November 2022 are the biggest overhaul in that area of regulation in 60 years, said Karen Barr, chief executive of the Investment Adviser Association, and she said firms will need the next year to prepare.

“The new rules allow testimonials and change the way firms can report performance,” Barr said. “Firms will have to review all their marketing and solicitation efforts, reassess and rewrite policies and procedures, and change the way they report fees. Since everyone will have to start from scratch, it will take from now until next November to get ready.”

On another regulatory issues, Barr said that SEC Chairman Gary Gensler is bringing the Biden Administration’s focus on climate risk, human capital and sustainable investing to all the areas in the agency’s purview.

Weighing in on the spending bills now being hashed out in Congress, Jorge Castro, an attorney with the Washington law firm of Miller & Chevalier, said the current uncertainty over the total spending and how taxes will be raised to pay for it is far from over.

“The uncertainty is likely to ruin Thanksgiving and go well into December,” he said, noting that the nonpartisan Congressional Budget Office has yet to say anything about the various spending bills.

“I don’t think Congress will be willing to move ahead until the CBO weighs in on how much the bills will cost and their effect on the deficit,” Castro said.

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