More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
In the fourth meeting of the Strategic Dialogue set of talks between the SEC and the Commission's U.K. equivalent, the Financial Services Authority, SEC Chairman Mary Schapiro and FSA Chief Executive Hector Sants agreed on September 16 to explore "common approaches to reporting and other regulatory requirements" for hedge funds and their advisors, the OTC derivatives markets; credit ratings agency oversight; short selling; corporate governance and compensation; accounting issues; and regulatory reform in general.
As a first step, the two agencies agreed to build a common set of data to collect from hedge fund advisors and managers.
In a statement, Schapiro said that "Only through strong cooperation can we achieve coherent oversight of global actors and limit opportunities for playing the regulatory seams. I look forward to continuing this successful dialogue between the SEC and FSA."
This is the fourth meeting in the Dialogue, which began in June 2006. The two agencies have worked together during the financial crisis, such as in promoting the use of central counterparties for clearance of credit defaulat swaps
The FSA has been quite active over the past few years in reforming regulation of financial services in the U.K. Perhaps its most controversial move has been to propose a ban on "independent financial advisers," or IFAs as they are called, selling any products that pay a commission. There are some 35,000 IFAs in the U.K., and it's estimated that half are commission-based; the proposed ban would take place at the end of 2012. After that time, in addition to fee-only IFAs, another class of advisors, called restricted, would be able to sell proprietary products.
The language in the FSA's document proposing the commission change--it was floated in June and comments are due by the end of October--is stark and to the point: "The proposals bring to an end the current, commission-based system of adviser remuneration: we propose to ban product providers from offering amounts of commission to secure sales from adviser firms and, in turn, to ban adviser firms from recommending products that automatically pay commission. Consumers will still be able to have their adviser charges deducted from their investments if they wish, but these charges will no longer be determined by the product providers they are recommended."