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Financial R&R: 2022 ICI Investment Management Conference Recap

By Alliant Specialty

Risks within the investment management sector are expected to see an uptick with regard to oversight, enforcement and compliance. Ron Borys and Ryan Farnsworth, Alliant Financial Institutions, sits down with Tyler Entwistle, Alliant, discussing the risks and key takeaways learned at the 2022 Investment Management Conference.

Introduction (00:01):
Welcome to Financial R&R, a show dedicated to financial insurance and risk management solutions and trends shaping the market. Today. Here are your host, Ron Borys and Ryan Farnsworth.

Ron Borys (00:14):
Well, welcome everyone. This is Ron Borys, and this is the latest edition of the Financial R& R. I am here with Ryan Farnsworth. And today our special guest is Tyler Entwistle. Tyler and Ryan spent last week in Palm Desert, California, at the 2022 ICI Risk and Insurance Management conference. And given our support of that event annually and the market share that we have in the 40 Act Mutual Fund space, we thought it would be great to invite Tyler on, to talk to Ryan and me about some key takeaways, right? As we know the intent is very widely tended by many lawyers and other subject matter experts, and certainly people who are responsible for managing risk in the 40 Act space. So, Tyler welcome.

Tyler Entwistle (00:57):
Great. Ron, thanks. And thanks, Ryan. It's great to be here.

Ryan Farnsworth (01:01):
Ron, you mentioned that we were there with a large contingent of people. It felt great to be at an in-person conference again because although we've done a lot of those over Zoom over the last couple of years, the risks haven't necessarily changed. And in fact, they've only increased, especially for the investment management sector. I mean, the ICI did a very conscious change of going away from calling it the Mutual Fund’s Investment Management Conference to the Investment Management Conference. Because it's very clear as we'll talk about through some of the takeaways today, is that the risks that investment managers are facing, whether they be public mutual funds or private or other fund-related vehicles, the risks are quite prevalent and are expected to see an uptick in oversight enforcement compliance. It was quite the takeaways that we had from the conference and I think that left everyone in the investment management industry a bit fearful for what's ahead. So, all the more reason to focus on how we can help those clients find the more rewarding way to manage risk in that sector and find ways to use our specialization in the investment management industry to drive the best possible results for them in the risk management process. So, Tyler maybe that's a good place to start. What were some of the general themes of the conference that you saw and witnessed together with our team that was there?

Tyler Entwistle (02:26):
Yeah, thanks, Ryan. And just to concur, it was great to be back in person this year. There really wasn’t one main theme, but a continuation of past themes, you know, like pressure on fees, cybersecurity, and various litigation trends. And then also some new issues that have come up over the last couple of years that are facing advisors and boards of funds, like the rising importance of ESG or environmental, social, and governance crypto. And then, you know, some of the effects of the pandemic on the fund industry. And, you know, while there's been a lot of talk of deregulation over the past few years, that sure seems like the SEC has a lot on their plate, you know, with several items on their agenda. So, you know, we'll be looking to hear more from the commission and they did mention several times, three C’s, the Climate, Cybersecurity and Crypto. So, I think those would be something to keep a focus on, but the key takeaways that I really came away with, were the litigation, the role of the boards, and then the SEC enforcement.

Ryan Farnsworth (03:34):
Yeah, it seemed like a key theme was to stay abreast of what the SEC is doing, because we don't know what's ahead. You know, it was just a couple of days before the executive order from the president was signed with respect to cryptocurrency and blockchain technology, which essentially gave the regulators six months to start to put something together for how that piece of the risk dynamic is going to be monitored and overseen by regulators. And like you said, Tyler, the litigation piece of it will always be a component of how insurance claims respond in particular. But, for this conference in particular the role of the board and the SEC and the priorities that they have for the upcoming year are something that we're really going to have to pay attention to. Some of the proposed rules that the SEC has put out with respect to cyber security, with respect to private fund regulation, are still in the comment period right now left to some open items that still needed to be considered in the coming months as those rules become regulated by the SEC. The consistent theme of cyber crypto and climate will likely be there again as well next year, as we dive specifically into litigation Tyler. What are some of the things that as we anticipate the release of the ICIS claims report in the coming days, what are some of the things from a litigation standpoint that in investment managers should be concerned about?

Tyler Entwistle (05:03):
Yeah, there are a couple of things, you know, there's always the mention, you know, as in years passed on 36-B litigation or excessive fees litigation, and we've been talking about that for years, and while there's no new cases in this area being filed and the plaintiffs have lost all the cases that have been filed. It's definitely something that, you know, we're going to need to keep an eye on though. There was a gentleman William Birdthistle who is one of the new members of the SEC and at the conference much to the chagrin of many lawyers and fund managers in attendance was openly questioning, whether mutual funds are honoring their fiduciary duties under section 36-B of the investment company act given that no plaintiffs had been successful. So that's something that we'll definitely need to keep an eye on and you know, what exactly does that mean? We're not sure yet, but again, it's something that, we need to keep an eye on, and I'm sure we'll be talking about it next year as well. You know, other areas that they continue to be focused on are prospectus and disclosure-based liability. And this is important where the board should be involved in the process with the outside council and their service for riders to help the material, in that preparation. And I believe that we've done a podcast with John Mulligan from the ICI where we talk about the litigation facing mutual funds. And so, I'd encourage our listeners to visit that.

Ryan Farnsworth (06:32):
I think you hit the nail on the head, Tyler, where there are so many issues that are still forthcoming in terms of rulemaking and an aggressive strategy from the SEC that these are all board-level decisions and discussions that bleed down into the Chief Compliance Officer. There may not be a more important role in the investment management industry than the Chief Compliance Officer. Because as you think about all the things that they're going to be charged to do and to oversee in the management processes, things such as valuation where fee pressure is already prevalent in the industry, that's only going to become more of a focus for investment managers as they try to balance the cost of compliance with the SEC and any new rules that will be implemented with maintaining a competitive landscape on fees and how they're encharging the disclosure of those fees and how they're actually charging those fees. As you said, the SEC made numerous comments around the disclosure of fees and how that's going to be part of the process going forward in helping manage risk and disclosure for investors. Tyler, I think you know, as we think about the priorities for the SEC for 2022, maybe we can finish the discussion on that because as we have focus within the boardroom for these types of risks and anticipated changes in rules, thinking about what the SEC is thinking about is also helpful to help our clients manage that risk. Maybe speak to that a little bit, Tyler, about what the priorities are for the SEC this year.

Tyler Entwistle (08:10):
Yeah, and we briefly mentioned this at the outset, but you know, they really kept hammering on these three C’s, the climate cybersecurity and crypto. And for climate, there's a new directive you mentioned on the public company, climate disclosure that gives fund clients an opportunity to engage with the companies that they invest in and find out what's behind exactly what you say you're going to do. And so that will be interesting to watch how the SEC monitors that. On cybersecurity, we've been talking about this for several years, but it's very important to have a plan in place and to review it often, not only with the board, but with the investment manager and have those two working collaboratively and making sure that they're reviewing that plan on a quarterly basis, not just once a year, but several times a year. And then, you know, with the rise of cryptocurrencies advisors and boards, they need to continue to monitor this evolving area and see if there going to be any new regulation that comes out, you know, we'll be interested to watch. And I think we're obviously in the very early stages of this area. So again, this is something that we'll be talking about for years to come. And then, you know, another theme that was discussed and has been discussed in the past but is really making the investor experience better, for fund clients with more user-friendly disclosures, pushing electronic delivery reports and technology to make the content better. And again, this gentleman William Birdthistle mentioned it'd be great if investor reports, would come out with like a one-page statement that includes the fees that are associated with your funds, and it's similar to something you receive from a credit card company or utility company. And so, he was really hammering away that we need to make the investor experience that much better for investors. As you mentioned, unfortunately, the cost to comply with all these proposed regulations will make compliance very costly and that could escalate the cost of a fund. So, it'll be interesting to see again, what happens in this area.

Ryan Farnsworth (10:29):
Well, clearly our investment management and financial institution clients have seen and have had to deal with higher costs with respect to insurance in the last couple of years. And fortunately, we do see some softening in that market. And especially as we highlight two underwriters, what specifically investment managers and financial institutions are doing to comply with new rules and new regulations from the SEC. You mentioned the public company, climate disclosure. I mean, that, as of now through the comment period, that's a disclosure requirement that's applicable to all SEC registrants, not necessarily just public companies, but all SEC registrants. And so, as people within the investment management industry find a way to manage this type of regulatory litigation and compliance risk, we are going to be fighting hard to help insurance underwriters understand how those efforts and processes will enable them to be a better risk from a management and professional liability standpoint. And that together with market competition and a softening insurance market will help drive and help clients find a better solution and a more cost-efficient structure from an insurance perspective. Tyler, we really appreciate you having the time to be a part of the Investment Management Conference. Our team together with Andrea Kiefer for Brian Rozynski and ourselves had a great time there. We've built a lot of key relationships as we look to what's ahead for the SEC and the investment management industry in general. Thanks, Tyler for joining us.

Tyler Entwistle (12:06):
Thank you. And it will be certainly interesting to watch.

Ryan Farnsworth (12:10):
I really enjoyed this podcast when you think about the preview that we set up with Dan Steiner and John Mulligan before the conference, and now this recap, like I said, we've been long recognized as a leader in this space. We're certainly committed to investing in this space in a meaningful way for the benefit of our clients. So, with that, we're all out of time, really appreciate everybody tuning in and listening to this episode of the Financial R&R. We have a lot more good stuff coming to talk about in the coming days and weeks, we can't get it out fast enough. So, stay tuned for the next one. If you're interested in learning more about Alliant and our team at Alliant, you could visit our website at, but otherwise, we look forward to talking to you again soon. Thanks so much.


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