From the July 2009 issue of Investment Advisor • Subscribe!

Regulatory Reform Angst

Sidebar to the Danger & Opportunity article "Bracing for Change"

More On Legal & Compliance

from The Advisor's Professional Library
  • The Custody Rule and its Ramifications When an RIA takes custody of a client’s funds or securities, risk to that individual increases dramatically. Rule 206(4)-2 under the Investment Advisers Act (better known as the Custody Rule), was passed to protect clients from unscrupulous investors.
  • Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIA’s failure to stay within the scope of the Section 28(e) safe harbor may violate the advisor’s fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients’ transactions.

It's clear that advisors are worried about the impact of regulatory reform measures--specifically now that President Obama's blueprint (announced June 17 and available for download at solidifies the Administration's plan to harmonize B/D and advisor rules and fiduciary standards for brokers. A recent survey of registered investment advisors by TD Ameritrade Institutional found that regulatory changes ranked as RIAs' top concern over the next 12 months. Fifty-six percent of the RIAs TD Ameritrade polled said that the greatest concern they had about pending regulatory reform was that they'd have to dedicate more time and money to meet compliance requirements. What's more, 83% of RIAs agreed that they would have to dedicate more of their time to handling new regulatory requirements, which would reduce their time with clients. Sixty-eight percent of RIAs said that they'd have to add resources to manage new regulatory requirements.

When queried on which fiduciary standard RIAs would support for their advisory business with individual investors, 36% said they support applying the fiduciary standard that applies to RIAs to broker/dealers; 29% supported adopting proposed Principles of Fair Dealing that emphasizes fair treatment of investors by applying the same core standards of care whether the firm is a financial planner, investment advisor, a securities broker/dealer or another financial services provider; and 25% voiced support for maintaining the current fiduciary standard for RIAs and the suitability standard for brokers.

TD Ameritrade surveyed 503 RIAs by telephone between May 14 and May 22, 2009.

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