More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Yet another top official at the SEC is championing the idea of harmonizing rules for investment advisors and broker/dealers. In a speech before the Mutual Fund Directors Forum Ninth Annual Policy Conference May 5, SEC Commissioner Elisse Walter threw her support behind a legislative remedy. "I believe that regulation of a financial professional should depend on what she does, not what she calls herself or how she is paid," Walter said. "As a corollary, I also believe strongly that retail investors should not bear the burden of understanding distinctions between financial professionals that have become increasingly less relevant over the years. These opaque distinctions frequently lead to investor confusion and arguments about definitions that simply should not matter. This reasoning, I believe, leads to the fundamental principle that should guide our review of how to regulate financial professionals for the protection of the investing public: Investors should receive the same level of protection when they purchase comparable products and services, regardless of the financial professional involved."
Walter--a former top official at both FINRA and the CFTC--said that to harmonize the regulation of broker/dealers and investment advisors "fully, legislative action appears to be necessary." She laid out four areas for Congress to consider in "vetting enabling legislation and by the Commission in implementing that law."
Registration Process. Currently, she said, there are different processes and different forms for broker/dealers and investment advisor registration. There should be a unitary system for registration. Every financial professional should be required to provide the information appropriate to the services and products he provides, in other words, his functions. There should also be a vetting process in which a new registrant would be required to demonstrate that he has the operational capacity to carry on its proposed business.
Licensing and Continuing Education Requirements. There should be licensing requirements for all associated persons, including the requirement to pass a proficiency test, and appropriate continuing education requirements.
Disclosure Obligations. Although both broker/dealers and investment advisers are currently required to disclose conflicts of interest to an investor, they do so in different ways, to different extents, and sometimes at different times. Financial professionals should provide investors with a uniform disclosure document, explaining their material conflicts of interest at account opening (as currently the case with investment advisers).
SRO Membership. All financial professionals should be required to be members of one or more self-regulatory organizations ("SROs") that are empowered with both enforcement and standard-setting authority and are subject to the oversight of the Commission.