More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Pay-to-Play Rule Violating the pay-to-play rule can result in serious consequences, and RIAs should adopt robust policies and procedures to prevent and detect contributions made to influence the selection of the firm by a government entity.
To even the most casual observer, the need for a fiduciary standard that assures that any professional who provides financial and investment advice does so in the best interests of the client has never been more apparent.
To make sure that need is understood in Washington and considered when legislation and regulations are written, the Committee for the Fiduciary Standard announced on June 29 a campaign to support extending an authentic fiduciary standard to cover all advisors or brokers who give investment and financial advice, or who 'hold themselves out' as doing so.
In another development, the Financial Planning Coalition announced that NAPFA Chair Diahann Lassus will testify July 17 on the Obama Administration's reform plan before Rep. Barney Frank's House Financial Services committee. As part of her prepared testimony, Lassus will implore Congress to avoid undermining the fiduciary duty already in place under the Investment Advisers Act of 1940.
To show support for such a standard, the Committee is urging investors and financial industry professionals who agree with putting investors' interests first to sign a petition registering that point of view and calling Congress to do the same. The Committee is also mounting a campaign to talk to the media about how and why the fiduciary standard requires advisors to adhere to five core principles which put the client's welfare ahead of that of the advisor or his firm.
The five core principles are:
* Put the client's best interest first;
* Act with prudence--with the skill, care, diligence, and good judgment of a professional;
* Do not mislead clients--provide conspicuous, full and fair disclosure of all important facts;
* Avoid conflicts of interest; and
* Fully disclose and fairly manage, in the client's favor, unavoidable conflicts.
Committee member Kate McBride, editor in chief of WealthManagerWeb.com, said that "Investors typically assume that the investment advice they get is coming from a person who must put clients' interests first, just like their doctor or lawyer or CPA must. This fiduciary issue is, for investors, perhaps the most important part of the Obama Administration's June 17 plan for re-regulation."
In addition to McBride, the Committee's other members are Blaine Aikin, Fi360; Clark Blackman, Alpha Wealth Strategies; Harold Evensky, Evensky & Katz ; Sheryl Garrett, Garrett Planning Network; Roger Gibson, Gibson Capital; Matthew Hutcheson, Independent Pension Fiduciary; Gregory Kasten, Unified Trust Company; Fred Reish, Reish, Luftman, Reicher & Cohen; Ron Roge, R. W. Roge & Company; and Knut Rostad, Rembert Pendleton Jackson.Leaders of seven organizations representing financial professionals, regulators, and investorssent a joint letter on July 14 to Reps. Barney Frank (D-Massachusetts) and Spencer Bachus (R-Alabama) as chair and ranking member of the House Committee on Financial Services voicing their support for the proposal in the Obama Administration's White Paper on financial regulatory reform that would impose a fiduciary duty to act in their clients' best interests on anyone who provides investment advice. "This represents a broad range of interests," explained David Tittsworth, executive director of the Investment Adviser Association (IAA) and one of the signatories to the letter. "You've got state securities regulators, which in and of itself is 50 states, plus territories, the little SECs if you will; two consumer groups; the coalition of financial planning groups; and then our organization which represents SEC-registered advisors. I think just the fact that you've got this broad range of regulators, consumer groups, and industry groups is something significant." The joint letter refers to Section 913 of the proposed legislation which "authorizes but does not require the SEC to issue rules under the Securities Exchange Act of 1934 and the Advisers Act" that provide standards of conduct in providing investment advice.
While the groups offered support in principal for the proposal, the letter from the Certified Financial Planner Board of Standards, the Consumer Federation of America, the Financial Planning Association, Fund Democracy, the IAA, the National Association of Personal Financial Advisors, and the North American Securities Administrators Association noted that the legislation may fall short of reaching its stated goal unless revisions are made to "unambiguously provide for the extension of the overarching fiduciary duty that investment advisers owe their clients under the Advisers Act to brokers and others who provide investment advice, that this fiduciary duty is explicitly recognized in law, and that the legislation does not in any way undermine the fiduciary duty that already exists under the Advisers Act."
"It's just common sense to raise the bar and embrace a fiduciary standard of care for all those who deliver financial advice," Marv Tuttle, FPA's Executive Director and CEO told Investment Advisor."It's imperative that clients know that the financial advice they receive is in their best interest, regardless of whether it comes from an investment adviser or broker. We're looking forward to working with Congress to make sure we achieve that goal, while eliminating the current regulatory gaps."
"Consumers deserve the tools to make sound financial decisions. Just like selecting a doctor, consumers should be able to clearly identify competent and ethical financial planners and advisors - who are bound by a code of professional conduct to put their interests first and foremost," said Marilyn Capelli Dimitroff, chair of CFP Board's Board of Directors in a prepared statement. "Our goal is to have all financial intermediaries who offer financial advice subjected to the high standards of a fiduciary."
The letter was also sent simultaneously to SEC Chair Mary Schapiro and Treasury Secretary Timothy Geithner.
As reported at WealthManagerWeb.com, the Committee has invited two leading securities attorneys, Thomas Lemke, managing director and general counsel of Legg Mason, Inc., and Steven Stone, partner at Morgan Lewis & Bockius in Washington DC--who favor "a harmonized standard"--to debate the issue with members of the Committee. In Knut Rostad's blog on WealthManagerWeb.com, he explores the issue and describes the opposing forces further.
In a related development, U.S. Congressional Representatives George Miller (D-California), and Robert Andrews (D- New Jersey) have introduced a bill, the 401(k) Fair Disclosure and Pension Security Act of 2009 (H.R. 2989), mandating fair disclosure of the real costs associated with 401(k) retirement accounts, and requiring that advisors to retirement accounts and individual participants be fiduciaries.
In a further related development, on July 10, the Treasury Department sent proposed legislation guidelines to Congress for regulations that "give the SEC authority to require a fiduciary duty for any broker, dealer, or investment advisor who gives investment advice about securities, aligning the standards based on activity, instead of based on legal distinctions that are no longer meaningful."