Displaying items by tag: regulations

Friday, 15 March 2024 04:08

Gasoline Prices Expected to Rise

Lower energy prices have provided some relief for consumers over the last few months. However, this could be changing with demand set to increase as we enter the start of driving season which is due to be exacerbated by refinery outages in many parts of the country.

 

Over the last month, gasoline prices are about 5% higher but still slightly down relative to last year at this point. Higher energy prices negatively impact consumer confidence and discretionary spending but also feed into inflationary pressures. In last month’s CPI report, higher energy prices was a major factor in the hotter than expected readings. Additionally, they have political implications given elections in November.

 

According to analysts, the situation is likely to get worse before its gets better. Gasoline inventories are lower than normal, following a 5.7 million barrels decline last week, and are now 3% below their average levels for this time of the year. Inventories could continue to be drained as refineries have been running below 87% capacity for the last 8 weeks. Adding to these issues is recent drone strikes on Russian refineries by Ukraine.


Finsum: Gasoline prices have been rising due to refinery issues. The situation is likely to get worse before it gets better as we enter summer driving season, and inventories have been drawn down more than expected. 

Published in Eq: Energy
Friday, 29 September 2023 13:09

Brokerages Still Struggling With Reg BI Compliance

A little more than 3 years ago, the SEC strengthened fiduciary rules with the passage of Reg BI, and this was also adopted by FINRA. According to a recent report from state regulators, brokerages are still struggling to comply with these new regulations.

In essence, Reg BI ensures that any recommendations made by a broker have to be offered impartially along with an explanation of any alternatives. The purpose of these rules is to ensure that there is no conflict between a broker and the client without necessarily imposing the full fiduciary obligation of RIAs. 

The North American Securities Administrators Association (NASAA) reviewed broker compliance efforts and found middling results especially given that 3 years have passed. Additionally, the SEC and FINRA have stepped up enforcement efforts this year.  According to the group, there remains room for improvement especially as many brokers remain uncertain about the rule and its application to products like annuities, leveraged products, private placements, or other alternative investment products. 

Many firms are creating their own protocols regarding compliance and spending more time on understanding their clients’ risk tolerance and goals before providing recommendations. However, the group also found that many brokerages are too lax especially when it comes to providing disclosures and alternative recommendations. 


FinSum: The North American Securities Administrators Association conducted an audit of brokerage to see how Reg BI compliance efforts are going. 

 

Published in Wealth Management
Tuesday, 16 May 2023 08:06

FINRA Boots SW Financial, Cites Reg BI

In an article for FinancialPlanning, Dan Shaw covered FINRA expelling SW Financial of Melville, NY for a variety of violations of industry rules. FINRA cited the firm selling private placement IPOs that were unsuitable for some of its customers. This is a violation of Reg BI, where brokers can only sell private shares to wealthy or accredited investors. 

As of April 2023, SW Financial had 38 representatives, 4 branches, and had been operating since 2007. SW Financial’s co-owner and CEO Thomas Diamante was suspended from the financial industry for 9 months and fined $50,000. Diamante and SW Financial agreed to the settlement without admitting or denying guilt. 

FINRA also said that the firm notified clients that it was receiving a 10% commission on the private placement but not that it would be getting an additional 5% in selling compensation. This is another violation of industry rules, where 10% is the most commission that can be earned. 

In total, the firm received about $2 million in compensation that created a ‘conflict of interest’ for the firm and its clients. They were also cited for a failure to conduct proper due diligence.


Finsum: FINRA expelled SW Financial for failing to follow Reg BI and churning customer accounts. 

 

Published in Wealth Management

Regulators are looking to get more aggressive about enforcement of Regulation Best Interest (Reg BI) which was passed in 2020. Regulators are particularly focused on sales practices to ensure that fiduciary standards are followed according to a Thomson Reuters article by Richard Satran.

Reg BI mandates that recommendations are offered with impartial advice and explanation of alternatives, including to competing firms. Along with the SEC, Reg BI has also been adopted by the Financial Industry Regulatory Authority (FINRA). 

One challenge for firms and regulators is that automated monitoring of transactions to ensure compliance is lacking. According to Parham Nasseri, VP in product and regulatory strategy at compliance software developer InvestorCOM, Inc: “Putting the risk assessments into a surveillance system for Reg BI compliance involves significantly more challenges than the kind of monitoring that systems have done in the past.” 

New elements to monitor include conflicts of interest, customer profiles, costs, alternative investments, and other client-specific factors. Along with the technological challenges, firms will have to comply with new exam requirements to comply with new sales practice rules. 


Finsum: Reg BI was passed in 2020 but regulators were slow to begin aggressive enforcement given the pandemic. This is changing and firms will be forced to rapidly update sales practices, training, and monitoring.

Published in Wealth Management

According to a Cogent Syndicated report from Escalent, advisors are not optimistic about the future of ESG investing partly due to growing political tension. Last year, 58% of advisors used ESG investments, down 10 percentage points from 2020, according to the Livonia, Michigan-based firms survey of over 500 financial advisors in September. In addition, only 15% of advisors who used ESG agree with its importance, while the majority of advisors don’t think ESG investing is a significant factor in attracting new clients. As part of the report, Linda York, a senior vice president in the financial services research division of Escalent, stated, “In the past six months, the topic of ESG investing has become even more divisive as political tensions rise. With firms suffering public backlash from using what many call ‘woke’ investment strategies, many advisors are waiting for clarity from regulators before using ESG investments. Increased supervision from federal or state legislature with added qualifications and reporting can only help in terms of ESG becoming more popular among advisors and investors alike.” In examining the reasons for the growing tension, Escalent said that advisors were concerned by the inconsistent definitions and perceived negative public sentiment of ESG.


Finsum:Based on the results of a recent report from Escalent, advisors are not optimistic about the future of ESG due to inconsistent definitions and perceived negative public sentiment.

Published in Wealth Management
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