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.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
As the nation's top bank CEOs took their drubbings from members of the Financial Crisis Inquiry Commission (FCIC) in Washington on January 13, on the causes of the financial crisis, at least one of the CEOs spoke out in favor of a fiduciary standard for broker/dealers.
Lloyd Blankfein, chairman and CEO of Goldman Sachs, told members of the FCIC in his testimony that Goldman does "support the extension of a fiduciary standard to broker/dealer registered representatives who provide advice to retail investors. The fiduciary standard puts the interests of the client first. The advice-giving functions of brokers who work with investors have become similar to that of investment advisers." But, he continued, "investors may not understand that the person they are getting advice from may be regulated under different rules and regulations. Retail investors should be able to expect the same duty of care when they are receiving investment advice."
Blankfein also said that while Goldman had not officially taken a position on the Consumer Financial Protection Agency--one of the main sticking points in the Senate's financial services reform bill--the investment bank agrees "that a more specific focus on consumer protection, whether in the context of a new agency or otherwise, is warranted."
During his testimony, Jamie Dimon, chairman and CEO of JPMorgan Chase, presented a laundry list of underlying causes of the crisis. They include, he said: the creation and ultimately the bursting of the housing bubble; excessive leverage that pervaded the system; the dramatic growth of structural risks and the unanticipated damage they could cause; regulatory lapses and mistakes; the pro-cyclical nature of policies, actions and events; and the impact of huge trade and financing imbalances on interest rates, consumption and speculation. "Each of these causes had multiple contributing factors, many of which were known and discussed before the crisis," Dimon contended in his testimony.
The FCIC will hold another hearing January 14, in which it will hear testimony from financial services executives like Denise Voigt Crawford, the Texas Securities Commissioner, and president of the North American Securities Administrators Association (NASAA).
Crawford's testimony will provide insights on the investor protection role of state securities regulators, and she also plans to offer a series of recommendations to enhance the ability of state securities regulators to pursue financial fraud and prosecute the perpetrators of those crimes.