MarketCounsel and Dynasty Financial Partners have teamed up to make a strategic investment in SmartRIA, a regulatory and compliance technology platform for registered investment advisors. MarketCounsel President and CEO Brian Hamburger announced the partnership at the annual MarketCounsel Summit in Miami this week.
“For Dynasty, they have the ability to deploy a common set of technology across their network advisory firms,” Hamburger said. “For us at MarketCounsel we were able to take our robust compliance program along with our monitoring algorithms and integrate them into SmartRIA, so that we can run a managed edition of SmartRIA.”
Dynasty will deploy The SmartRIA Pro platform across its network firms, while MarketCounsel will use a customized edition of the platform with its advisor clients. Terms of the investment were not disclosed. As part of the deal, Hamburger will join SmartRIA’s board of directors.
“As the regulatory and risk landscape continues to evolve, RIAs find themselves allocating outsized internal resources to protect the firm and maintain their regulatory compliance program,” Hamburger said in a statement.
The SmartRIA Pro platform provides trading monitoring, documentation of operations and records, automated workflows for RIA team members and data governance.
During his opening keynote at the MarketCounsel Summit, Hamburger outlined a number of regulatory and compliance concerns facing RIAs. For one, RIA marketing and advertising is going to get more aggressive as the Securities and Exchange Commission’s new ad rule is implemented. While the rule, which allows RIAs to use testimonials and endorsements, does not go into effect until November 2022, advisors can use it now, if they adopt it in its entirety.
“There are still some requirements, however,” he said. “It’s not the Wild West.”
Advisors must disclose whether compensation was provided for endorsements or testimonials and whether there are material conflicts of interest.
Cybersecurity is another compliance issue he said is underreported. A lot of advisors have been faced with cybersecurity sweep exams by the SEC, and those exams tend to be pretty onerous and cumbersome, Hamburger said.
“This is what we call ‘rulemaking by examination,’” he said. “There really is no cybersecurity rule at the SEC, but what they do is they go out and conduct examinations and they cite advisors for deficiencies under the guise of protecting the client’s interest.”
But cybersecurity is not just a compliance concern; the real risk is to the business, Hamburger said. “It’s embarrassing; it’s humiliating, and it’s happening an awful lot.”
Cryptocurrency is another issue advisors need to be aware of. Advisors need to consider due diligence on these investments, client suitability, disclosures, risks, custody issues, compliance policies and procedures, conflicts of interest and best execution.
“Whether or not you or your firm engages in trading crypto or blockchain, every single firm needs to leave here and have their crypto story written,” Hamburger said.
Overall, the way the SEC is changing their way of going after advisors, with Chair Gary Gensler taking a very pro-investor approach, Hamburger said. For example, he's brought on a lot of investor advocates to the SEC staff.
The biggest trend MarketCounsel sees with enforcement is with “templates.”
“The templates are any unique theory that the SEC comes up with that proves to be successful against an advisor—they then spend time to determine who else is potentially a target for this theory?”
The most recent example is with the SEC’s share class disclosure initiative, where they found a few firms that sold inappropriate share classes to clients. Advisors will continue to see SEC scrutiny along those lines, Hamburger said.
