Action Plan for BDs & RIAs to implement the #DOLFiduciaryRule

Broker-Dealers and Registered Investment Advisor firms are in need of an action plan to implement the DOL Fiduciary Rule change. As any experienced compliance officer can tell you, planning ahead will be key in making a smooth transition to the new standard.  For this reason RND Resources put together a practical plan for small to mid-size BD and RIA firms to understand the DOL rule change and implement steps to meet the new compliance requirement.

The presentation will help BDs and RIAs to understand

• Which products are affected by the DOL Fiduciary Rule of April 2016
• Developing an action plan to get ahead of the DOL change before it is mandatory
• Ways to gain a competitive advantage by implementing the DOL rule change early
• The difference between Level Fee and Non-Level Fee transactions and how to transition commission based products
• Determining when to use Transactional BIC versus Contracted BIC exemptions, and more….

Action Plan for DOL Fiduciary Rule April 2016 from RND Resources Inc

If you’re starting a new BD or RIA, adopting the DOL Fiduciary standard is key to growing your business in the Senior and Retirement investor marketplace. Start out by setting up products and marketing material along with policies and procedures that drive advisers toward retirement related standards. This will help place your new firm ahead of established firms struggling to change.

RND Resources is a compliance consulting firm that assists new firms with formation and registration.  Our professional staff also works with established firms that need on-going compliance support. We are able to generate customized policy and procedure updates so firms can quickly adjust to changes in regulatory requirement and products. We also provide on-going compliance support and report filing services on a monthly, annual, or interim basis. Call us for more information about training staff and implementing policy for the DOL Fiduciary rule change.

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  RND Resources Inc | Los Angeles CA | 818.657.0288 | www.finracompliance.com

Tips to Reduce Audit and Examination Costs for BD's and RIA's

How Broker-Dealer and RIA firms can reduce the cost of  Audits and Examinations

Mid-sized broker dealers struggle to stay on top of audit preparation work. Even with today’s automated accounting technology and regulatory software; compiling data and records for audits is a time consuming task that large companies assign to a task force who monitor audit capabilities year round.  Some firms try to save costs by preparing audit records themselves, but wind up paying more in the end. They’re charged higher audit fees as a result of poorly organized records, incomplete information, and misunderstanding of the auditors’ role. Once the auditor has received the records, it can be anyone’s guess how they will be interpreted and what additional questions may be required.  Firms can benefit from a significant cost savings by outsourcing the audit preparation work to experienced pro’s.

Minimize Risk of Negative Audit Results and Keep Audit Costs Down

An important component in minimizing the risk of negative audit results is to first understand what the role of the auditor is. The auditor is engaged to “render an opinion on whether a company’s financial statements are presented fairly, in all material respects, in accordance with financial reporting”. Firms that don’t recognize this often make the mistake of providing poorly documented information, assuming the auditor will straighten everything out on the go. This costly assumption leaves firms paying hourly audit rates for the auditors staff to properly organize the records before they start on the audit itself.  Having the auditor spend time organizing your records can add up fast.

To form an audit opinion, the auditor “gathers records, observes, tests, compares, and confirms accuracy of data and processes”. Then “the auditor forms an opinion of whether the financial statements are free of material misstatements and if fraud or error exists”. In analyzing records the auditor does not reconcile the accounts and financial statements, but makes a judgment on how well the company has reconciled its financial statements and accounts.  The auditor does not prepare footnotes or financial statement disclosures, but will assess what the company accountant has included in footnotes. The auditor does not maintain records, establish values, locate records, or prepare the entity for the audit. These responsibilities rest solely on the firm being audited. Further, the auditor does not make a recommendation for corrective action plans, rather they identify if corrective action measures should be taken.

A clear picture of what the auditor does and doesn’t do can be found in the PCAOB.org Ethics and Independence Rules for Auditors. The mainstay of auditor independence is that auditors do not take responsibility for records and financial statements on which they form an audit opinion. Responsibility for the financial statements and records lies squarely on the shoulders of the company being audited.

Learn more at the Compliance Roundtable Meeting -  June 14 & 15 2016 in Irvine or downtown Los Angeles

For more tips register for the June 2016 #LosAngeles #compliance and #riskmanagement roundtable meeting. The roundtable discussion meeting is sponsored by RND Resources Inc, compliance, audit, and regulatory support services firm located in Woodland Hills California. RND Resources has been serving broker-dealers and registered investment advisors for over 30 years with audit preparation services and regulatory support. RND Resources also provides regulatory compliance consulting & support for #fintech firms.  The secondary topic we’ll be discussing at the meeting is best practice for reviewing #cybersecurity along with system testing and penetration testing technology.  Sign up on our website at www.finracompliance.com 

Read more about Audit Preparation Support Services available from RND Resources Inc.

Tips to Developing #FintechStrategy for Investment Firms

Start-up technology ventures are exploiting Financial Services with a flurry of Fintech firms posing a threat to big banks. Broker-dealer firms, RIA’s, and wealth fund managers are feeling it too.

The staying power of Fintech Firms

Emerging Fin-tech firms are faster at innovation and willing to accept low margins as a cost of entry to the market. They have also benefited from slow-to-react regulatory authorities blinded by the word technology even as many cross over into risk based financial dealings. One strategy of Fintech’s is to offer niche solutions to customers; such as mobile bill payment solutions, peer-to-peer lending, and digital currency. As their subscriber base grows, they offer more and more services, pulling clients away from banks and traditional investment firms and into a fold of multi-layered solutions.

Some say Fintech firms will pull back when regulators catch up and start mandating oversight with examinations, monthly reports, and minimum net capital requirements. More likely, technology firms will come up with innovative technology and reporting features to satisfy regulator cries for control.  As a compliance consulting firm, we’re seeing an influx of #regtech solutions (also called regulatory technology) for compliance and audit management.

FINRA release: March 2016  Report on Digital Investments Advice

Office of Comptroller of the Currency release: April 2016   Responsible Innovation for Federal Banking System   

As emerging trends gain ground, regulators have taken note by releasing a series of recommendations and white papers about the Fintech surge, urging sound risk management and investor protection standards. Why are Fintech firms able to evolve and grow so fast? Economies of limited scope and awesome technical resources are one good reason. Here's more - 

• Private investors and non-public, pre IPO entities give leaders more control
• Limited focus on only one or two good ideas, for now…
• Specialized workforce with technical skill and experience in emerging technology
• Starting with new technology and platforms rather than adding on top of slower legacy platforms and procedures

How Investment & Brokerage firms get involved with Fintech Solutions

Securities firm executives are asking themselves how can I get on board with a Fintech strategy that captures the new breed of market share who doesn’t care if they ever talk to a human being at my firm, wants real-time data, and access to their account everywhere they go.

Get started with your own #FintechStrategy  

Determine a goal. Firms first need to decide on a strategy and then discuss action to implement a Fintech business plan. A team should collectively decide the role technology will take such as;

• Reduce overhead costs – (i.e. replace an employee with technology)
• Drive revenue – (i.e. pay per transaction service)
• Add Value, Client Retention  – (i.e. convenience services; mobile stock alerts, text transactions)

Research Fintech business models. Consumers receive value from all kinds of technological advances including; the internet of things, mobile access to the web. They expect access to real-time data, and efficient on the go solutions. Many prefer talking to machines as opposed to people. There’s a variety of Fintech sector firms that securities businesses are suited to launch or participate in. Here's a few examples - 

• Retail Investments – Sigfig, Wealthfront, FutureAdvisor
• Institutional Investments – Stocktwits, SumZero, HedgeSPA
• Financial Research – Stocktagon, Q
• Consumer Banking – Gobank, Simple
• Business Tools – Zen Payroll, Xero Accounting
• Online Lending – Orchard Bank, Lending Club, Prosper
• Personal Finance – HelloWallet, BillGuard, CreditKarma
• Payments – Paypal, Wepay, Stripe
• Equity Financing – Seedinvest, EquityNet

Firms may also choose a less involved strategy like purchasing or investing in a Fintech firm by way of crowd-funding or a strategic partnership. Large banks and technology companies are already doing this. For instance, Google Ventures is heavily invested in the automated robo-advisor service “Robinhood”, while Goldman Sachs is backing “Motif-Investing”. One advantage to this strategy is the technology skill set is already in place.

Understand your target customer. Client investors these days are looking more and more for firms they can engage with. Consumers want real-time insight and advice. They’re highly mobile, active on social media, and enjoy participation in peer-to-peer structures. 

In looking at your Fintech plan, think in terms of what you’re capabilities are today and where you would like them to be in the future. From there, draft out a strategy to reach this goal. Consider that the differentiation between Fintech firm types is blurred. Many services cross-over into other unanticipated uses. Anticipate the unexpected.  For instance, smarter, faster trade solutions can lead to clients wanting simpler ways to raise money for investing, or access to simulated investment training, or even virtual reality trade exchanges. Online wealth portfolio management services can lead to a need for integrated banking solutions and on demand mobile money platforms. 

Take a look at your target market and anticipate what future needs will be or what needs are not being filled today. Develop a vision for your future business model that relies on new revenue drivers. Ask yourself what role technology can play in the business model. 

From there move forward to elements of the Fintech business model considering; budget and cost structure, revenue stream, and changes in overhead or organizational structure. With these elements in place, teams can decide if they want to build or enhance systems already in place, or invest in a Fintech firm. Some firms can develop a strategic partnership to launch their idea.

The best ideas will usually include; cloud computing capability, client pay-as-you-go services, or strategic vendor relationships.

RND Resources Inc is a compliance and audit consulting firm to the securities industry. We provide scaleable, integrated solutions for risk management and compliance. Visit our website for more details www.finracompliance.com/services  

We assist securities firms with a suite of regulatory compliance support programs;

• FINRA New Member or Change applications: NMA, CMA FINRA applications

• Financial Reporting & FinOps: FOCUS filing and related schedules, Annual Assessment reports

• Compliance Services: Procedures & Policies WSP, Advertising review, Annual Compliance Reviews, Outsourced CCO Principal Service

• Audit Services: FINRA regulatory examinations, Certified BD Audits, Custody Audit, AML review, Custody Exams

• FINRA Notice, Sanction, Complaints & Arbitration: Respond to regulatory notices, Customer complaint filings, Forensic Accounting, Expert Witness Service

• Cybersecurity Consulting: Procedure and planning, vendor management, staff training

• Fintech Consulting: Regulatory Compliance Consulting and Support Services for Financial Technology firms; Development and strategy consulting for Fintech entry firms

RND Resources Inc is a proud member of McGladrey Alliance. McGladrey is a leading provider of middle market audit, tax, and consulting services. This strategic membership gives us the competitive advantage of access to audit, technology, research, and tax planning tools. As a full service compliance firm for middle market brokerages and investment advisors, we’ll be able to serve clients with robust solutions and trusted technology platforms. McGladrey Alliance has global capabilities with professionals able to assist from over 100 countries. Visit our website for more details: http://www.finracompliance.com/about-us/mcgladrey-alliance-member/

SEC 2016 - Release of OCIE Regulatory Examination Priorities

Standing by its commitment to provide transparency and share information with industry registrants; the SEC has released 2016 examination priorities from OCIE, Office of Compliance Inspections and Examinations.  

According to Marc Wyatt, OCIE Director, “We hope that registrants will use this information to [evaluate] their own compliance programs.”

New areas of focus this year:    

Liquidity Controls |

September 22 2015 SEC voted to propose rule 22e-4, in order to improve liquidity risk management of open-end funds such as exchange-traded funds (EFTs) and mutual funds. The key feature of open-end funds is that they allow investors to redeem their shares daily. Thus, the funds must maintain liquid assets in order to meet shareholder redemptions. 2016 examination priorities will include a look at potentially illiquid securities and various controls in place to manage risk, valuation, liquidity, trading, and capital.

Public Pension Advisors |

Pay-to-play rule 206(4)-5 was adopted June 2010 to address the inherent issues related to the power public officials have in appointing an investment advisory firm to manage public pensions. The rule limits political contributions by investment advisors and other collusive activities like entertainment and travel. 2016 examinations will continue to focus on identification of undisclosed gifts.

Product Promotion & Disclosure | 

Existing and emerging investment products can be complex and high risk. For 2016, the OCIE asserts its commitment to protecting investors from sales practices that result in a breach of fiduciary responsibility or unsuitable investments.

Read more about the new areas of focus and additional risk management priorities to protect investors such as Cyber-Security governance.

On a broader scope, OCIE indicates sweeps to unravel risk across various types of industry business models such as; investment companies, broker-dealers, transfer agents, clearing agencies, and exchanges, areas of focus include:

• Protecting Retail Investors and Investors Saving for Retirement
  • Growing numbers of investors face a greater dependence on their own savings for retirement. The initiative to protect investors includes focus on basis for recommended investments, conflicts of interest, and marketing disclosure.
• Assessing Market-Wide Risks
  • Maintaining orderly and efficient markets is at the core of the SEC’s mission. Examinations will include a look into structural risks and trends, over multiple firms or entire industries.
• Using Data Analytics to Identify Signals of Potential Illegal Activity
  • Always striving to detect risk, the OCIE mines data intelligence from examinations and regulatory filings. Algorithms, data analysis, and review are leveraged to identify registrants and areas with elevated risk profiles.

RND Resources Inc is a leading compliance consulting firm helping broker-dealers, investment advisors, and fund managers meet regulatory compliance obligations. Visit our website for more details:  www.finracompliance.com

Are you a new broker-dealer or registered investment advisory firm needing help with cyber-security compliance.  We can help.  Call us for a quote (818) 657-0288 or visit our website for details.