Regulatory Modernization

Rapid technological advancements, evolving investor expectations, and the emergence of new financial products demand a fresh approach to dated regulations. Outdated rules and guidance hinder financial advisors and firms from fully leveraging digital tools and innovative technology to enhance the client experience. To ensure a thriving financial services industry best positioned to serve today’s investors, modernizing regulations is not just an option — it is a necessity.

Why Financial Services Regulations Need a Refresh

Many existing regulations don’t fit with advancements in technology. This results in trying to fit a round peg in a square hole, which leads to hesitancy in adopting new products, technologies, and business practices. The financial services industry needs Regulatory updates so firms, advisors, and investors can benefit from innovation while still ensuring investors are protected.

Areas for Regulatory Modernization

We are calling for updates to regulations and guidance and we have identified three key areas for regulatory modernization:

Updating Antiquated Rules & Practices

Outdated rules limit the ability of financial firms and advisors to implement streamlined, technology-driven processes. Regulations should reflect modern business practices, enabling firms to operate effectively while maintaining compliance.

Allowing Payment to Ensemble Practices: Currently, SEC rules require securities commissions to be paid to individuals as opposed to business entities. Over the years, advisors’ businesses have evolved from solo practices to ensembles, making this current structure burdensome and ineffective. In addition, it creates challenges for advisory firms trying to pay their staff’s wages and when hiring new, younger advisors who need to be fully supported as they launch their careers.

Expanding Access to Evolving Products & Services

Outdated regulations create barriers to accessing certain investment products. A regulatory framework that allows access to a broad scope of products while protecting investors is key to ensuring financial advisors can offer clients a full range of solutions that best align with the client’s needs and best interest.

Updating the Accredited Investor Definition: With new products and resources becoming available in the financial markets, it is time for the SEC to reevaluate and update its accredited investor definition. An updated definition would expand investor access to a wider array of investments and products to help them achieve their financial goals.

Crypto: Investor interest in cryptocurrencies continues to grow. We support practical regulation of cryptocurrencies to ensure a market investors can trust. Also, by providing advisors with more knowledge and resources about crypto, they will be better equipped to educate clients on the potential benefits and risks of investing in this novel market.

Accommodating Technological Enhancements to Client Services

Advisors need the flexibility to engage with clients using their preferred communication methods, such as secure messaging platforms, video conferencing, and AI-driven tools. Modernizing regulations so that the financial services industry can embrace these technologies will ensure that clients receive the personalized service they expect.

Use of AI: As AI becomes increasingly prevalent in our daily lives, the financial services industry needs to be able to address its existence across common digital platforms and be able to effectively use it while maintaining data security. Learn more in our white paper, Artificial Intelligence: Balancing Innovation, Interoperability, and Oversight, a three-part guide offering a decision framework for AI use by firms, interoperability standards and practices to ensure AI tools work together across the industry, and a look at the regulatory and legislative landscape to guide policies and compliance.

E-Delivery: Despite widespread use of the internet, regulations still require many investor communications to be mailed. FSI supports allowing electronic delivery (e-delivery) as the default, giving investors faster, safer, and more convenient access to information. Learn more in our white paper, developed in collaboration with the Investment Adviser Association, SIFMA, and SIFMA Asset Management Group, E-Delivery: Modernizing the Regulatory Communications Framework to Meet Investor Needs for the 21st Century.

A Call for Commonsense Regulatory Modernization

As the industry works to attract the next generation of clients and financial advisors, it is crucial that regulations support, rather than stifle, innovation and progress. Without regulatory modernization, firms may struggle to meet investor expectations, potentially hindering industry growth and competitiveness.

We are advocating for sensible updates to financial regulations and guidance that strike a balance between investor protection and industry advancement. A modern regulatory framework will empower financial advisors and firms to adapt to evolving business practices, new products, and innovative technologies – ultimately enhancing the client experience and ensuring an accessible financial marketplace for all.

Regulatory Modernization is one of FSI’s 2025 Advocacy Priorities. For more insights and updates on our advocacy efforts, join FSI today!