SEC initiatives that could affect financial advisors
On April 12, 2018, our chief compliance officer (CCO), Ms. Manal Fouz, attended the Compliance Outreach Program in Washington, D.C., sponsored by the U.S. Securities and Exchange Commission (SEC). The conference is designed to promote better communication between securities regulators and compliance officers. A limited number of CCOs from registered investment advisory firms nationwide are approved by the SEC to attend in person, while others can watch online.
Here are 3 take-aways you may be interested in:
1) Continued focus on older clients and protecting them from financial exploitation
The SEC continues to focus on how firms deal with their older clients and those who demonstrate diminished mental capacity. Sadly, most financial exploitation cases involving older clients is perpetrated by family members.
At Azzad, we’ve already implemented a few best practices mentioned during the conference. They include allowing you to assign a trusted contact on your account. A trusted contact is someone we can talk to in case we can’t reach you or want to confirm your requests. Your trusted contact won’t be able to conduct actual transactions with your accounts, so a power of attorney (POA) is best for those cases.
You can expect more questions from us if you’re suddenly showing signs of forgetfulness, making requests that are unusual for you, or if a new family member who does not have POA starts asking about your accounts.
2) Best practices around business continuity and cybersecurity
The conference also covered business continuity, disaster planning, and cybersecurity. Azzad continues to invest in strengthening its cybersecurity controls. Recently, we hired a third-party consulting firm to conduct a cybersecurity and technology risk assessment.
We not only conducted this assessment on ourselves, but also on service providers with access to our client information. Without getting too technical, every week this firm tries to scan our network to see if there are any open doors that bad guys could potentially walk through and gain access to our confidential information. We also continue to educate our staff on how to identify cyber threats and phishing emails.
Some of the practices we’ve implemented to protect your information include sending important information to you by encrypted email, always calling you to obtain verbal verification of certain requests, and switching to a paperless system — many cases of identity theft still occur when thieves simply steal paper statements.
3) A proposed relationship summary to better distinguish RIAs from brokers
One of the proposed rules under consideration by the SEC would require broker-dealers and registered investment advisers (like Azzad) to provide a brief relationship summary (including a standard of conduct) to clients.
These new disclosures would be designed to help clients better understand the differences between a broker-dealer and registered investment adviser. It’s still a proposal at this point, but we’re already on board. Expect to see more information from us very soon.