More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- 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.
Among all the numbers surrounding the current economic crisis--$700 billion for the bailout of the toxic mortgages (or will that be used to buy stock in the banks?), or $70.3 billion (the amount, as of October 9, that AIG has drawn down from the Federal Reserve loan to keep it afloat), or $410 billion (the budget deficit projected by the White House before factoring in the effect of the $700 billion bailout), or my personal favorite, the $58 trillion notional amount worldwide in credit default swaps--the one that might be the most instructive of all is 90%. That's the percentage of Americans polled by Gallup and reported on October 10 who believe the economy is getting worse. Ninety percent. That's after Congress passed the bailout bill, that's after the coordinated move by central banks around the world to cut short-term rates.
In its droll commentary on the findings, the Gallup organization noted that "the problem seems to be that the freeze-up of the credit markets and the debate over the Treasury bailout may have taken the crisis of confidence in the banking sector on Wall Street to Main Street," before pointing out that the next president will "have an important opportunity to reinvigorate consumer confidence."
You may have other things occupying your time these days, like reassuring your clients that this is not the end of the world, but all of us have an important role, I believe, in injecting some context into this debate over how bad things really are, and will be, and why having long-term faith in the markets is not misplaced. My favorite quote on that topic came from Robert Baur, chief global economist at Principal Global Investors: "You shouldn't bet on this being the end of the world," he told a packed hall at the FPA's annual meeting in Boston, "because it only happens once, and it will be hard to collect." Eschatological humor aside, Baur went on to argue that not all is "doom and gloom." He believes the U.S. economy is in the midst of a "structural realignment" from a consumer-driven economy to an export-driven one.
Even Robert Reich, the Clinton Administration labor secretary and no cheerleader for Wall Street, argued in a column for the Seattle Post-Intelligencer that while the bailout and a deeper recession would balloon the budget deficit to more than 6% of GDP in 2009, "all is not what it seems." Since the bailout is "less like an additional government expense than a temporary loan or investment," the Treasury "will be able to resell the securities for at least as much as it paid, if not for a profit." Fellow Clintonite Lawrence Summers, the once and now shadow Democratic Treasury Secretary, told George Stephanopoulos on October 12 that "we've got a problem of trust. People trusting their money in financial institutions; financial institutions trusting each other; the whole economy trusting the government policy framework."
You know something about trust. While you may be a bit surprised, as one advisor said to another at the Schwab Impact conference in late September, that you'd "have to become an expert on SIPC and FDIC insurance," you also know how important it is for clients, who put their trust in you, to stay invested, even if, as another normally well-grounded advisor told, that he felt compelled to do some trading on behalf of his clients "just to stop the bleeding." You, the trusted advisor, provide the proper long-term context in which to understand today's volatile markets, a valuable service that we could all stand to be reminded of just about now.