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.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
While the House Financial Services Committee is busy marking up Consumer Financial Protection Agency (CFPA) legislation today, October 21, Rep. Barney Frank (D-Massachusetts), chairman of the Committee, has postponed marking up the discussion draft of the Investor Protection Act of 2009 until October 27 at the request of Republicans on his Committee.
The manager's amendment to the October 1, 2009, discussion draft of the Investor Protection Act--which will be discussed during the October 27 mark up--contains a number of notable modifications concerning fiduciary duty.
According to the revised Investor Protection Act, the manager's amendment "clarifies that investment advice subject to a fiduciary duty is provided on a personalized basis. It also expands the commission-based sales language to include other standard compensation systems. The U.S. Securities and Exchange Commission (SEC) is further authorized to facilitate the disclosure of any material conflicts of interest of brokers, dealers and investment managers in their disclosures to retail customers." The SEC, it continues, "would further have the authority not only to prohibit but also restrict certain practices, conflicts and compensation schemes. Additionally, the manager's amendment ensures that the standard of conduct for all brokers, dealers and investment advisers providing personalized investment advice will be at least as high as the current standard prevailing today for investment advisers. Harmonization of enforcement of the standard of conduct is amended in both the Exchange Act and the Investment Advisers Act."
David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington, says that "we continue to have concerns, including the fact that the most current proposal (Section 103) would open the door to having different standards for different types of clients. We think all investors should have the protections afforded by the Advisers Act fiduciary standard." Tittsworth says that IAA is also concerned "about provisions in the current proposal (Section 302) that would authorize the SEC to collect user fees from all investment advisors to cover all costs related to SEC inspections and examinations. We support giving the SEC adequate resources to do its job. But our first preference is to implement a self-funding mechanism for the SEC (allowing the SEC to use the transaction fees it collects). We also think the $25 million threshold separating SEC- and state-registered advisors should be increased. User fees should be considered only after these other options are explored."
Kristina Fausti, director of legal and regulatory affairs for Fiduciary 360 (fi360), says that on her initial review "all of the changes on the fiduciary duty are just meant to clarify the statutory language and do not change any of the original intent of the statute."
The House Financial Services Committee will meet on October 27, and subsequent days if necessary, to consider the following measures as well:
? The October 1, 2009 Discussion Draft of the Private Fund Investment Advisers Registration Act of 2009 (to be reported as H.R. 3818);
? The October 16, 2009 Amendment in the nature of a substitute to H.R. 2609, Federal Insurance Office Act of 2009; and
? The October 16, 2009 Discussion Draft of the Accountability and Transparency in Rating Agencies Act.