More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- How to Avoid Sabotaging Your Compliance Exam There is much more to compliance examination survival than knowing all of the rules. It helps to understand why the rules were put in placeand to recognize that examiners are not the enemy.
Lawmakers, the Securities and Exchange Commission, and state regulators are bent on making sure advisors with designations touting expertise when it comes to helping seniors--the most vulnerable retirees--are closely scrutinized.
Speaking at a hearing held by the Senate's Special Committee on Aging September 5--the first Congressional hearing on the matter--SEC Chairman Christopher Cox said that over the past year the securities regulator, in tandem with state regulators, NASD, and NYSE, has been examining firms that sponsor "free lunch" sales seminars. The SEC's Office of Compliance, Inspections, and Examinations (OCIE), along with NASAA and FINRA, unveiled the final and complete results of these coordinated exams at the SEC's second annual "Seniors Summit" held at SEC headquarters in Washington September 10; the results are also posted on the SEC's web site, www.sec.gov. As suspected, Cox said the exam results show that "despite being advertised as 'educational' or touting 'nothing will be sold,' the purpose of these seminars is to convince attendees to open new accounts with the sponsoring firm--and ultimately, to sell financial products to seniors." The advertisements and mailings used to lure seniors to the events are also "confusing or misleading about the intent of the event," Cox said.
Over the past year, Cox noted, the SEC's enforcement division has brought at least 40 enforcement actions involving fraud on seniors.
Cox told members of the Committee on Aging, which is chaired by Senator Herb Kohl (D-Wisconsin), that state regulators are considering and developing "model regulation" that would prohibit advisors from using a designation to mislead investors. Kohl said he intends to develop legislation that will provide a uniform standard for the accreditation of senior financial advisors that he hopes state regulators would adopt. Seniors "should not be worried that the title after their advisor's name is scarcely more than a marketing ploy, and that it was not earned through sufficiently rigorous financial education and training."
Cox told the committee that the "Federal government does have a role to play." Cox told reporters after his testimony that he believes a "collaborative approach" between state regulators, the SEC, and Congress in dealing with senior fraud is the best solution. Cox said that the issue of duping seniors is "too complex" for a federal solution alone, adding that the SEC was to address at the senior summit whether "an act of Congress" is needed. "Working with Congress, we should be able to make short work" of this problem, Cox said.
Data From the States
Joe Borg, director of the Alabama Securities Commission and president of NASAA, the state securities regulators association, told the committee members that NASAA's 2005 enforcement survey revealed that 28% of all investor complaints submitted to state securities agencies came from seniors; 26% of all state enforcement actions involved the financial exploitation of seniors, and 34% of all cases of senior exploitation