On Monday, the Securities and Exchange Commission warned that broker-dealers are using outdated systems to ensure Regulation Best Interest compliance, resulting in violations in areas such as rollover and account recommendations. In a recently released Risk Alert, the SEC’s exam division points to several compliance deficiencies that it has found during exams. Following Reg BI’s June 30, 2020, compliance date, the Division of Examinations started conducting broker-dealer exams to assess compliance with the rule. The risk alert calls attention to deficiencies noted during exams, and examples of weak practices that could result in deficiencies. The Risk Alert stated that moving forward, the exam division intends to incorporate compliance with Reg BI “into retail-focused examinations of broker-dealers, particularly those that include sales practices within the scope of the examination.” According to the SEC, broker-dealers are relying “heavily on surveillance systems that existed before the effective date” of Reg BI “without considering whether those systems needed modification.” The SEC also found conflict of interest failures such as broker-dealers not having written policies and procedures on how conflicts are to be identified or addressed and failures to disclose information on website postings. Other failures included registered reps acting in multiple roles, and the failure to disclose that these “multiple relationships require disclosures of capacity and may require additional disclosure of conflicts.”

Finsum:The SEC recently issued a Risk Alert, warning broker-dealers that they are using outdated systems to ensure Reg BI compliance, resulting in violations in rollover and account recommendations.

While the younger generations have been driving interest in ESG, it appears that the older generations are changing their stance on aligning their values with sustainable investments as they want to leave the world in a better place. This is according to a study by Campden Wealth for Global Impact Solutions Today (GIST) and Barclays Private Bank. They collected data from nearly 150 respondents, including the world’s wealthiest individuals, families, family offices, and their foundations. The respondents come from 35 countries and have an average of $730m in assets under management. The study found that 36% want to demonstrate their family wealth can be invested for positive outcomes, a 13% increase from the previous year’s findings. In addition, more than half said sustainable investing is bridging the gap between younger and older generations, and almost 70% reported sustainable investing is being embraced by the generation in charge of the family’s wealth. More than three-quarters (77%) said they want to leave the world a better place, while 84% said their private capital will be essential in addressing climate change. Damian Payiatakis, head of sustainable and impact investing at Barclays Private Bank stated, “These global wealth holders have realized their capital makes an impact on the world. Accordingly, they want their portfolio to be lucrative and to be personally meaningful. The mindset shifts I’m seeing is to invest not only for tomorrow but to influence it.”

Finsum:Based on the results of a new study, impact investing is bridging the gap between younger and older generations, with almost 70% reporting that sustainable investing is being embraced by the generation in charge of the family’s wealth.

According to a new report, advisors may be missing out if they are reluctant to target next-gen investors. Research from Fidelity Institutional Insights found that investors under the age of 40 are inheriting more than $540 billion in the United States every year, 30% of the total wealth transferred. In addition, data from Cerulli Associates shows that the demographic will control three-quarters of $84 trillion in inherited wealth by 2045. The Fidelity report is a wake-up call for advisors that shy away from young clients due to higher debt, fewer assets, and generational differences. Fidelity Investment’s vice president of practice management and consulting, Anand Sekhar, said the revenue-weighted age of the average Fidelity advisor’s client is 65. According to Sekhar that creates a huge problem for advisors in the future. With older client rosters, advisors could see widespread drawdowns and not enough clients to take their place. Making matters worse is that only 13% of advisors are engaging with clients’ children and grandchildren, which puts billions currently managed at risk. Fidelity’s data suggests that if firms can reduce the revenue-weighted age of clients by just seven years, from 69 to 62, it can increase a firm’s growth tenfold. The research also suggests that establishing those relationships now could produce greater returns as investors under 40 are investing earlier than their parents and are willing to pay for advice.

Finsum:With the average revenue age of clients nearing 70, many firms could see soon see massive withdrawals with no clients waiting in the wings, which is why advisors need to start engaging with clients’ children and grandchildren now.