More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
The financial planning community and investor advocates are fighting a legislative amendment that's being circulated by Senator Tim Johnson (D-South Dakota) that would delete the requirement from pending financial reform legislation that brokers be held to the same fiduciary standard as registered investment advisors.
Johnson, a member of the Senate Banking Committee, is asking that the Securities and Exchange Commission (SEC) conduct a study "to determine appropriate obligations" of advisors and brokers, and then to issue a rule after such a study is completed.
Senator Christopher Dodd (D-Connecticut), chairman of the Senate Banking Committee, has said that he wants to have a financial services reform bill done by the end of February. The House bill as well as the discussion draft of Dodd's bill both require that a fiduciary duty be extended to brokers.
Jeff Gohringer, a spokesman for Senator Johnson's office, said in an e-mail to Investment Advisor that "Everyone agrees that we need to find a solution that puts an end to consumer confusion about the differences between broker/dealers and investment advisors." The Rand report, he continued, "outlined the confusion that exists on this, but it did not make policy recommendations. While it's still early in the process to be talking about final amendments, the Senator wants to make sure that whatever steps Congress and the SEC take moving forward is the right policy to protect consumers."
But Knut Rostad, the regulatory and compliance officer at Rembert Pendleton Jackson in Falls Church, Virginia, and chairman of The Committee for the Fiduciary Standard, says he and other committee members will be meeting with Senator Johnson's staff on February 19 to voice their concerns about the amendment. "It's incomprehensible" that "sixteen months after the financial system nearly collapsed, in part because Wall Street operated without transparency, [that] some believe we need to 'study' if we should increase advisor transparency and responsibility by extending the fiduciary standard," Rostad says. "This [fiduciary] battle isn't over; it's still very much in play."
Rostad adds that the Committee for the Fiduciary Standard (on which also sits Wealth Manager Web Editor Kate McBride) may also take its concerns about Senator Johnson's amendment to the airwaves soon via a national radio show that focuses on finance and investing.
Barbara Roper, director of investor protection at the Consumer Federation of America (CFA), says that CFA has drafted a letter to the Senate Banking Committee telling them that Senator Johnson's amendment "is not an acceptable alternative for investors for a variety of reasons." The confusion investors have about the regulatory differences between brokers and advisors "has been studied to death," Roper says, "the most recent being the Rand study, which was commissioned by the SEC because they knew investors were confused." After the Rand study was conducted, the SEC "concluded that we need a fiduciary duty for brokers." Another study as suggested by Senator Johnson, she says, "is a waste of time and money." With Senator Johnson's amendment, Roper adds, "We are very much at risk of losing one of the few provisions of the bill that directly benefits average investors."
Diahann Lassus, a spokesperson for the Financial Planning Coalition--which consists of the CFP Board, the Financial Planning Association (FPA), and the National Association of Personal Financial Advisors (NAPFA)--says the Coalition opposes Senator Johnson's amendment because it "slows down the [legislative] process by studying something that's been studied before."