Brian Hamburger plays the heavy on DOL rules at Ray Jay's national RIA event in St. Petersburg and goes light on fear-mongering

Bill Van Law's primary concern at his firm's national event for RIAs was to let the channel of advisors with perhaps the least to worry about from the DOL's new rules know that they still need to think in new ways.

“Just because, as RIAs, you are already fiduciaries, don’t think the new DOL rule doesn’t apply to you,” said Bill Van Law, president of Raymond James Financial Inc.'s Investment Advisors Division, at the firm's annual Wealth Managers Conference in St. Petersburg, Fla. last week. See: DOL rule still has feet tangled in the struggle to define difference between 'suitability' and 'fiduciary'

Both to reinforce those concerns and allay any paranoia from them was Brian Hamburger, president and CEO of MarketCounsel. His big point is that RIAs need need not quail at the prospect of the new rules, which are still subject to legislative amendment and, depending on the outcome of the presidential election, could be done away with altogether.

Even if they should survive intact, Hamburger says, RIAs should be fine.

“None of the new rules, even the proposed ones, will be crippling to your business -- they are quite logical," he said. "But my advice is to go straight until you must turn, so while a rule is in its proposed form don’t lose too much sleep over it.”  See: With a nod to OSJ power and DOL rumblings, Gladstone convenes 100 advisors in Philly

Hamburger delivered that nuanced message to the 300-plus conference attendees, which included existing RIA clients as well as more than 60 visiting advisors exploring the Raymond James RIA custodial platform. He also delivered a soup-to-nuts survey of risk-mitigation and regulatory-compliance best practices, especially in light of the new Dept. of Labor fiduciary rules, which are set to go into effect this spring. 

But IRAs and RIAs

The most attention needs be paid to the SEC's shifts in scrutiny regarding examinations.

With IRA rollovers, Hamburger said, if you cannot prove that your client is better off as a result of your actions, be prepared for scrutiny and perhaps skepticism. See: Why luring 401(k) assets to IRA rollovers in a post-DOL-rule world remains child's play, which keeps $7.6 trillion in the IRA game and growing

Quantitative items are increasingly more important than qualitative fees, and therefore the results have to be better than before, he continued. Gone is the default choice. In addition, if you recommend having assets managed by a third-party manager, you had better be ready to substantiate that recommendation.

The SEC will also be wanting more detail in ADV disclosures as to where assets are custodied and how they are managed. See: CONCERT attracts $1.7 billion of 'AUA' after its AUM attracts the unwanted attention of the SEC 

And, Hamburger said, there will be new scrutiny of marketing materials, social media activity, and gaps between stated and actual performance or service.

Hamburger canvassed other areas of interest including whistleblowers (no contracts will be allowed to prohibit an employee going to regulators with an issue), custody transfers (more due diligence is required in verification of client identity), and recidivist advisors (scrutiny of firms that hire advisors with negative CRD records). 

Countdown to Apr. 8

Doug Brigman, Raymond James’ VP of fiduciary, brought his perspective to the DOL rule. While most RIAs will be less impacted than commission-based or hybrid advisors, they are not immune to its consequences, he said. In fact, some of the areas of concern for RIAs -- and where examiners will be focusing their attention -- are compensation, exclusive benefits and prudent expert rules, diversification, 401(k) rollovers and retirement plan distributions.

“Plan and document" he stated over and over.  See: DOL rule still has feet tangled in the struggle to define difference between 'suitability' and 'fiduciary'

Meanwhile, the industry awaits clarification from the DOL on many parts of the rule while working on an implementation date of April 8. Brigman said utilizing planning software to document all decisions and recommendations as well as client actions is going to be essential moving forward. Brigman also told advisors to go ahead and analyze all account fees and adjust as necessary to reach a level fee for each account type. 

To Raymond James clients in particular, Brigman stressed RJ's historical advocacy of a uniform best-interest standard. "Our culture has always emphasized the client’s interests first, which aligns with the spirit of the DOL rule." See: As Raymond James seeks to wire its Alex. Brown upbranding deal, it hires past Deutsche CEO Seth Waugh with bona fides and baggage

Brigman said the custodian is working with product partners and regulators to introduce DOL-compliant products; is planning for a seamless transition at each of the two main implementation deadlines; doesn't anticipate significant disruptions to the advisor-client relationship; and, while some companies may be looking at the rule as an opportunity to make significant changes to their service model and pricing, said that Raymond James is working closely with industry experts and regulators to comply with the rule while preserving as much choice as possible for advisors and their clients and minimize cost implications. Raymond James launches 'phenomenal' RIA-like pay structure to the $100 million set

Kathleen Miller, an RIA from Kirkland, Wash. stated that while, apart from additional documentation, she doesn’t think her practice will be much impacted by the new rule, she is concerned about small investors. “These folks will be left without access to financial advisors to help them plan for retirement -- as many advisors won’t find it profitable to serve small investors.” 

Miller took issue with regulators regulating to the lowest fiduciary level on the assumption there is no integrity in the profession, a totally false assumption, to her mind.

Luisa Nemati, an IA from Dallas, agrees. “Small investors will be hurt under the DOL rule,” she said. “They will be forced to turn to robos but without the benefit of getting any advice.”   See: Marty Bicknell jumps into the mass market with no 'robo-advisors' and a missionary zeal

But Nemati takes a long view and chooses not to be distracted by the hype around the elections, DOL, or other market uncertainties, saying her firm, The Milestone Group, survived the 2008-'09 collapse, and so will survive whatever comes their way this year and the next.

How to ignore ransomware

A cautionary note was sounded by Raymond James' head of the cybersecurity division, Andy Zolper, who told advisors how to guard against cyberattacks at the practice and workstation level and described what Raymond James does on a daily basis to thwart the hundreds of thousands of malicious emails, ransomware attempts and efforts to penetrate the firm’s security systems. See: Jaws drop after Dale Brown Skypes keynote address to Laser App conference with the claim: 'We were fiduciary believers long before being a fiduciary was cool'

Cyberattacks fall into two categories, said Zolper. The first is high volume-low margin: those millions of phishing emails and ransomware attempts. Then there's low volume-high margin -- attacks from perpetrators known in Zolper’s cyber organization as "elephant hunters." Elephant hunters are patient, spend a long time researching their marks and then attempt to fool them with large payoff scams such as fraudulent wire-transfer requests. RIAs are often independent of their custodians’ IT systems, so it’s incumbent upon them to know about the methods of attack and protect against them. See: The non-Big Four RIA custodians, no longer runts but stunted in growth, are applying tougher love to hobbyist RIAs

As for ransomware -- currently the most prevalent of the high-volume attacks -- the most basic step is to install data backup strategies. If data is backed up down to the workstation level, then ransomware extortion demands can essentially be ignored. For low-volume attacks, knowing your clients and verifying transactions by calling your clients is still the best advice. Tip: never “unsubscribe” to unwanted emails by clicking that link within the email - mark as spam or junk instead. 

Show your work

Sean Friedly, senior manager of the Raymond James' financial crimes management group, discussed the proposed anti money laundering rules for RIAs.

When implementing AML strategies, RIAs should consider the SEC’s core steps: designate an individual responsible for the firm’s AML function; build out a training program for all associates (including the board); conduct independent testing and auditing; and pay attention to documentation -- written programs and processes, controls must be in place.

Above all, Friedly said, know your clients. "Know who is behind a trust or other entity, where is the money coming from, what is the source of revenue -- then document it. 'Show your work' is the new SEC watch-phrase." See: Skip Schweiss awakens FPA NorCal crowd with must-do DOL laundry list that starts with IRA billing and the need for chief laundering officers

George Guerra, an attorney with Wiand Guerra King P.A., whose expertise is in financial services litigation and enforcement actions, talked about how to keep a practice compliant from a regulatory standpoint. He said the new DOL rules put the onus on RIAs to analyze their business models, document policies and procedures and use a disciplined approach to investments and all advisory processes.

Whether complying with DOL or AML regulations or preventing cyberattacks, documenting and then following your processes will not only benefit your practice but instill trust in you by your clients.

Van Law touts client growth

In his talk, Van Law recapped his division’s growth -- an more than 18% compound annual growth rate in assets over the past five years -- and touted a promising pipeline for 2017, which underscored Hamburger’s claim that the RIA channel is the one to watch.

Van Law noted that with the recent acquisition of the Alex. Brown unit from Deutsche Bank, additional tools and resources will be available to all Raymond James advisors and RIA clients, such as expanded alternative investment choices and services for the ultrahigh-net-worth market, new lending offerings and multicurrency capabilities. See: As Raymond James seeks to wire its Alex. Brown upbranding deal, it hires past Deutsche CEO Seth Waugh with bona fides and baggage

Van Law praised the technology at Raymond James, saying it has kept pace with the firm’s growth the past year, adding efficiencies and conveniences across the platform including advisor mobile, client vault, e-signature, account aggregation and enhancements to many other tools. See: Raymond James lets six advisors steal the show at its national event with TED-style talks

He also noted that the top RIA clients at Raymond James had enjoyed impressive growth – as high as 90% over the past year

Van Law concluded by drawing the distinction between Raymond James and other custodians – as a full-service partner to leading RIAs and in its capacity as breakaway advisors.  No other custodian, he claimed, offers the breadth and depth of recourses, technology and services to the RIA market. See: After winning a $1-billion RIA, Raymond James fills a void by hiring a true-blue elite RIA executive

Get it in writing

In his talk, Hamburger addressed the recruiters in attendance, saying that when converting wirehouse brokers into independent RIAs, its important to have fully baked offer as opposed to a general statement of good intentions before meeting with a traditional wirehouse broker who is looking to go independent.

While the move to independence continues to be a strong and attractive option, the competition is stiff and if you plan on growing through acquisition and recruitment, you had better have a written plan spelling out what the advisor can expect in terms of support, compensation, equity (or a path thereto), marketing, advisor's responsibilities, book ownership, employment contract, technology, broker-protocol compliance, etc.

No longer, said Hamburger, can you take a prospect to lunch and paint a rosy picture of the future -- it had better be in writing for it to be real to the prospect. See: After BNY Mellon buys $2.7-billion Silicon Valley RIA, it files suit against four former staffers who file swift-uppercut countersuit

In a conversation before his presentation, Hamburger spoke of the ecosystem that now exists for independent financial advisors, including OSJs, aggregators and roll-ups, which together constitute a healthy and diverse set of choices.  

He stressed that despite the allure of independence, not every advisor is cut out for it. “It’s not for everyone. My job is to make candidates aware of the challenges, the comforts, and the confines.”

Litmus test

Hamburger's litmus test is if an advisor’s eyes “light up over the phone." But if he senses an advisor is “frozen at the thought of making tons of decisions,” then he knows independence may not be the right path. See: MarketCounsel launches legal hyperspace button for breakaways who get fired by Merrill Lynch (and friends) before the 'go' date

The RIA channel is the fastest growing segment of the industry, said Hamburger. “Independence is an advisor’s biggest strength and yet can be their biggest weakness.” Hamburger commented on a successful trend in which RIAs focus on a small number of client families, offering fewer services, but adding more value.

Anthea Penrose is public relations manager for Raymond James Financial.