More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
In response to the scandal over favors given to some Fidelity mutual fund equity traders and supervisors by certain broker/dealers from 2002 to 2004, Fidelity chairman Ned Johnson apologized to shareholders, customers, clients and employees, and said Dec. 21 that the company would pay $42 million plus interest to its mutual funds "for this misbehavior and the company's failure to stop it"--a penalty recommended by its independent trustees, which included as its head at the time the new Defense Secretary, Robert Gates.
The Trustees' report on the scandal found that "... inadequate supervision and other shortcomings exposed the Funds to the potential risks of adverse publicity, loss of credibility with their principal regulators, and loss of Fund shareholders."
Earlier this month, one of those brokerage firms implicated in the scandal--Jefferies Group--agreed to pay a fine of nearly $10 million to NASD and the SEC to settle charges that it illegally spent $2 million in entertainment and other gifts, like expensive golf trips and the use of private jets, on the Fidelity fund traders. Jefferies also agreed to hire an independent consultant to review its compliance procedures.
The Trustees' report is available at
http://personal.fidelity.com/global/content/independent-report.shtml.cvsr?refhp=pr&ut=A47; Johnson's open letter is at