More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
The regulatory stew in Washington is beginning to come together, with Mary Schapiro confirmed to chair the SEC and with the Commission's enforcement chief, Linda Chatman Thomsen, having resigned in early February under pressure from Congress, specifically for the SEC's failure to detect and prevent the Bernie Madoff Ponzi scheme. In the background, however, another regulatory ripple has been launched that may become a tsunami: FINRA is quietly conducting a sweep of broker/dealers that could be the first steps to having the SRO take over regulation of registered investment advisors from the SEC--something the former NASD has long desired.
In mid January, FINRA's Enforcement Department sent out a letter to an unspecified number of broker/dealers asking if each B/D had referred any clients to RIAs for the express purpose of receiving investment advisory services. In particular, FINRA is seeking information on whether any of those broker/dealers referred business to Mr. Madoff and, if so, what the procedure was that the B/Ds filed. FINRA wants to see documentation for such activities that took place during the review period from January 1, 2006, through December 31, 2008.
This, says securities attorney Brian Rubin of the Washington, DC-based law firm Sutherland, could be the first step in a FINRA lobbying campaign to assume the SEC's oversight of RIAs. "It's Madoff-related, yes," admittted Rubin in an interview January 29 during the annual gathering of the Financial Services Institute (FSI), but "part is broader than that," suggesting that once FINRA gathers the information on business referrals to RIAs, they may "use it as ammunition" in its attempt to gain oversight of RIAs.
The B/Ds subject to the sweep were to have filed their responses by February 6, but Rubin suggested many would get extensions.
Suggestions for Mary
In a session during the FSI conference on the critical regulatory issues facing broker/dealers, there were some pointed suggestions for what the new SEC chairman should--and shouldn't--do.
One topic was a federal charter for insurance companies. "The states are not in favor" of the proposal, said Brian Murphy, chairman of Woodbury Financial, The Hartford's independent B/D, "but The Hartford is in favor of it." Murphy said the current system of "having 50 judges" creates a "difficult environment," but that having "one agency for licensing and product approval will help fix a broken system."
Speaking of which, in responding to the question of what Schapiro's priorites should be in her first 100 days at the SEC, Murphy suggested she "focus on the gaps and stay away from the rhetoric that everything is broken." Warning of the drawbacks of regulatory over-reaction, especially to the Madoff scandal, Murphy used a metaphor. "If you're running a city and you decide you're going to stop the bad guys by frisking every citizen, by stopping every car at roadblocks, and placing governors on every vehicle so they can't travel over 10 miles per hour--well, I don't want to live in a city like that."