From the April 2008 issue of Investment Advisor • Subscribe!

SEC: "We hear you"

More On Legal & Compliance

from The Advisor's Professional Library
  • Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients’ privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
  • Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firm’s policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.

The Securities and Exchange Commission has proposed an amendment to Part 248 Reg S-P: Privacy of Consumer Information and Safeguarding Personal Information, that may make taking customers to a new firm easier on reps and B/D executives.

As proposed, the amendment "would permit a limited transfer of information to a nonaffiliated third party without the required notice and opt out when personnel move from one broker-dealer or registered investment advisor to another." But it also proposes to "broaden the scope" of information covered under Reg S-P, according to the SEC's release after its March 4 open meeting. (SEC Release www.sec.gov/rules/proposed/2008/34-57427.pdf)

The Financial Services Institute (FSI), the advocacy group for independent broker/dealers that has been vocal about the impracticality of Reg S-P as it currently stands, e-mailed FSI members and journalists regarding the proposal. In a memo to FSI's General Counsel, David Bellaire, law firm Sutherland Asbill & Brennan LLP stated that "a firm relying on the exception would obtain from the departing representative a written record of the information to be disclosed," changing how, for all practical purposes, many reps or investment advisors "likely remember the basic contact information for their clients, or have it in their personal records" and says the SEC acknowledges that "while some firms discourage departing representatives from soliciting clients to move their accounts to another firm, others do not." The amendment could, according to the Sutherland memo, "provide an orderly framework for a supervised transfer of basic customer information." The SEC will accept comments for 60 days after the proposal is published in the Federal Register. FSI says it's carefully reviewing the proposal.

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