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.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
The Securities and Exchange Commission (SEC) is getting its first woman chair. President-elect Barack Obama introduced December 18 in Chicago veteran regulator Mary Schapiro, the current head of the Financial Industry Regulatory Authority (FINRA), as chairwoman of the SEC during his Administration.
Obama called for a "a 21st century regulatory framework to ensure that a crisis like this can never happen again" in announcing the nominations of Schapiro and Gary Gensler as the chairman of the Commodity Futures Trading Commission (CFTC).
"Financial regulatory reform will be one of the top legislative priorities of my Administration, and as a symbol of how important I view this reform, I'm announcing these appointments months earlier than previous administrations have," Obama said.
Industry officials in Washington say the President-elect couldn't have picked a more experienced and respected regulator. "I think she's an excellent choice," says Roel Campos, former SEC commissioner and a member of Obama's economic transition team. "She brings to the agency enormous competence, knowledge of the world of regulation, a really deep understanding of the mission of the agency, which I think many in today's discussion miss," says Campos, who's now partner-in-charge of Cooley Godward Kronish's Washington, D.C. office. "The role and the importance of protecting investors seems to get lost" among these talks of systemic risk. "Mary has the focus and understands how important to the capital markets it is to protect investors."
Schapiro has extensive experience with the SEC, as she served a six-year term as a commissioner during Ronald Reagan's administration, and was then named acting chair of the SEC during President Bill Clinton's term; Clinton subsequently named her chief of the CFTC. While there's no argument that Schapiro has extensive regulatory experience, she will, nonetheless, "have her hands full as she strives to restore confidence in the SEC," says David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington.
There have been talks of consolidating the CFTC and SEC under a broad financial services regulatory overhaul, but Campos warns not to "assume that this Administration, in the near future, would spend energies to bring both of those agencies together." Instead, he expects the Obama team will expend time trying "to cover the gaps in regulation." Schapiro will be particularly helpful in doing just that. "Her experience at the CFTC will be hugely helpful in trying to fill in the regulatory gaps that have been identified--credit default swaps, derivatives, and other hybrids that are part futures and part securities or insurance products," Campos says. "All of those things need to be brought under some coherent regulatory umbrella, and Mary's experience will be helpful. She knows what the issues are at both agencies."
Tittsworth says his group is anticipating working with Schapiro on issues that affect advisors, specifically "those relating to the SEC's structure and mission, potential 'harmonization' of laws and regulations governing brokers and investment advisors, and whether a self-regulatory organization (such as FINRA) should be established for investment advisors." The IAA, he reminds, "consistently opposed an SRO for investment advisors because we believe it would create an unnecessary, costly, and duplicative layer of regulation."