The SEC’s proposed rule requiring registered investment advisers to demonstrate a high standard of due diligence and oversight when selecting and retaining third-party providers for certain tasks, such as investment management, has not been finalized. Yet, it offers RIAs a glimpse into the future compliance landscape, one that many may not have anticipated.
RIAs may delegate investment management to external firms for various reasons, such as freeing time to focus on client relationships, improving portfolio quality, or reducing internal operational tasks.
And while the new rule may appear to be an additional burden, it has a silver lining. RIAs that meticulously select top-tier firms for outsourcing and transparently communicate their rigorous due diligence and oversight procedures to their clientele can use this as a demonstration to their clients of their high standard of care.
Even though all such firms will be held to these same standards, how an RIA firm communicates its process to its clients can be a differentiator. Rather than viewing this solely as a regulatory hurdle, RIAs can capitalize on compliance with the new rule as a means to strengthen client trust.
Finsum: Discover how the SEC's proposed “know your third-party” rule can be a unique opportunity for RIAs to enhance client trust.