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Effective, Modern Regulation

The IAA Supports More Effective, Efficient, and Modern Regulation

Advancements in technology, evolving business models and practices, and the increasing need for businesses to be nimble to respond to unexpected developments (such as the COVID-19 pandemic) have highlighted the need for a modernized and flexible approach to regulation. The IAA supports updating several areas of regulation under the Advisers Act to make regulation of investment advisers more effective and efficient for advisers, their clients, and the capital markets.

Electronic Delivery. The IAA supports providing investment advisers with greater flexibility in how they deliver required disclosures to their clients, calling for a change from the default of paper delivery to a default of electronic delivery with the option for the client to change to paper at any time. This approach would be more efficient for advisers, more secure for advisers and their clients, and would better reflect how today’s investors expect and prefer to receive communications from their financial professionals.

Adviser Advertising. The IAA advocated for modernizing and streamlining the rules governing adviser advertising, which had not kept pace with the internet, social media, and other developments. Our advocacy was instrumental in the SEC’s recent finalization of a new Investment Adviser Marketing Rule, which moves away from blanket prohibitions towards a principles-based framework for adviser marketing, bringing the way advisers communicate with their clients into the 21st Century.

Safeguarding of Client Assets. The IAA has urged the SEC to update the rules governing the safeguarding of client assets to better address stated objectives and eliminate technical, easily misunderstood language that arises from a confusing and complex Custody Rule and an extensive patchwork of staff guidance that is extremely challenging to navigate. We also believe the SEC should adopt a principles-based approach to the safekeeping of digital assets, which would allow for continued evolution in this space.

Political Contributions. The IAA has called on the SEC to update the unnecessarily complex “pay-to-play” rule governing political contributions by investment advisers. The IAA strongly agrees with the SEC’s goal of preventing investment professionals from “buying business” through campaign contributions. However the rule imposes significant cost and compliance burdens on advisers of all sizes, applying draconian penalties on a strict liability basis. The IAA supports a more tailored approach that would reduce these burdens while also achieving the underlying objectives of the rule.

Modern Methods of Advice Delivery. While several specific rules need updating, the Advisers Act itself, because it is principles-based and flexible, is as strong and pertinent to the business of investment advisers today as when it was enacted in 1940. While the way investment advice may be provided is evolving rapidly, all advisers are subject to the same robust and overarching fiduciary duty to their clients under the Advisers Act. Regardless of the mechanism through which investment advice is delivered – whether in person, over the phone, or on a digital platform, the Advisers Act fiduciary framework continues to be well suited to regulate the financial professionals providing that advice.

We therefore strongly support an approach to new methods of advice delivery, including digital advice, that embraces the Advisers Act framework and we oppose efforts to treat methods of delivery of advice differently under the Advisers Act.

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