More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- 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.
While healthcare reform is priority No. 1 for the Obama Administration, financial services reform is still alive and kicking, as President Obama made very clear as he renewed his push for financial services reform during his speech to Wall Street last month. And all bets among industry officials in Washington are that some form of financial services reform legislation will indeed get passed this year.
In his speech at Federal Hall in New York on September 14, Obama warned that the nation "...will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis." Rather, Obama said, what's needed now are "strong rules of the road to guard against the kind of systemic risks we have seen." He then called on the financial industry "to join us in a constructive effort to update the rules and regulatory structure to meet the challenges of this new century."
Rep. Barney Frank (D-Mass-achusetts), chairman of the House Financial Services Committee, is moving full speed ahead with plans to do just that. He plans to hold a host of hearings throughout the remainder of September and in October on various reform topics. A spokesperson for Frank's office says after the reform hearings in September, the Financial Services Committee will "move into mark-up mode in October and hopefully have something on the House floor in early November."
David Tittsworth, executive director of the Investment Adviser Association in Washington, says that since the House passed an executive compensation bill before the August recess, he expects Frank to move "other parts of regulatory reform" in late September and early October. Tittsworth also expects we'll see "outlines of a Senate bill in the near future." He says "financial services regulatory reform will be enacted this year, but the scope and details of such legislation are highly speculative at this point."
Senator Christopher Dodd (D-Connecticut), chairman of the Senate Committee on Banking, Housing, and Urban Affairs, decided against taking over as chairman of the Senate Health, Education, Labor, and Pensions Committee (HELP) after the death of Edward Kennedy.
An issue that's paramount to investment advisors and broker/dealers, of course, is whether financial services reform legislation that's passed this year will include requiring broker/dealers that provide investment advice to adhere to the same fiduciary standard as advisors. Kristina Fausti, director of legal and regulatory affairs for Fiduciary 360 (fi360), says that since the Obama Administration's regulatory overhaul proposal included applying the fiduciary standard to B/Ds, she's confident that the Administration will "push for this." Plus, she says, members of Congress are willing to consider proposals that deal with investor protection. But whether the fiduciary standard will be included in reform legislation that gets passed this year is unclear.
Fausti says that SEC Chairman Mary Schapiro is waiting for the green light from Congress before she tackles crafting a fiduciary standard for B/Ds on her own. The Committee for the Fiduciary Standard, of which Fausti is a member--along with WealthManagerWeb Editor-in-Chief Kate McBride--met with Schapiro on September 11 at her invitation, and during the meeting Schapiro "made clear that she does not think that the SEC has enough authority to do anything with the fiduciary standard on its own right now," Fausti says. Schapiro is waiting for Congress to issue legislation that provides "direction and timelines" on implementing a fiduciary standard.
Once that legislation comes out, it will be up to the SEC "to answer some very hard, practical questions and give good guidance on what the fiduciary standard is and how it applies to a lot of different situations," Fausti says. This is what Schapiro "is most concerned with"--how the fiduciary standard will be applied.
While Schapiro's stance remains intact that broker/dealers who provide investment advice should follow the same fiduciary standard as investment advisors, Fausti says, Schapiro said during the meeting that she fears that once a fiduciary standard gets adopted and becomes "more widespread," that "some sort of false hope is given to the public." Considering the large number of Ponzi schemes orchestrated by investment advisors that the SEC has uncovered since the Bernie Madoff fraud was revealed, Schapiro is "concerned about the SEC doing enough to back that up [the new fiduciary standard being applied], and prevent Madoffs and fraudsters that are out there," Fausti says. But Fausti says the Fiduciary Committee told Schapiro that "there will always be fraudsters" and that the SEC "still needs to put the [fiduciary] bar where it needs to be."