More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- 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.
Washington insiders now say that Senator Christopher Dodd (D-Connecticut), chairman of the Senate Banking Committee, will likely release a draft of his financial services reform bill early in the week of March 1, 2010, and that it will include Senator Tim Johnson's (D-South Dakota) amendment which asks that the SEC first conduct a study "to determine appropriate obligations" of advisors and brokers, and then to issue a rule on application of a fiduciary standard after such a study is completed. But the inclusion of that amendment, and the rejection of a fiduciary standard from Section 913 of the Dodd reform bill, has prompted strong reactions from several industry groups.
NASAA, the North American Securities Administrators Association, released a statement February 25 in which it urged the Senate panel not to eliminate in its reform bill the provision applying "the high fiduciary duty standards of the Investment Advisers Act" to brokers. The president of the state securities group, and the Texas Securities Commissioner, Denise Voigt Crawford, said in a statement that "Investors don't need another study. They need help now."
Also, The Committee for the Fiduciary Standard says it has called on members of the Senate Banking Committee to "not delete the pro-investor cornerstone of Wall Street reforms, reinstate the fiduciary provision in Section 913, and reject a provision to "study" the issue."
"The issue [of the differences in advisor and broker obligations] has been studied for many years. Our analysis of the study parameters offered by Senator Johnson reveals the key study questions have already been addressed by the SEC. As such, SEC Chairman Mary Schapiro and FINRA CEO Rick Ketchum have agreed it's time to act," said Knut Rostad, chairman of the Committee, and the regulatory and compliance officer at Rembert Pendleton Jackson, a Falls Church, Virginia, RIA firm, in a statement.
Rostad says in the statement that "SEC staff have for many years been studying and reviewing many of the considerations raised by the proposed study questions, and have been getting industry and consumer views from the newly formed SEC Investor Advisory Committee."
Rostad goes on to say that most brokers also agree it's time to act. In a survey released in December by SEI Advisor Network and the Committee, he says that "a majority of brokers (53%) agree all professionals who give investment or financial advice should meet the fiduciary standard; 27% disagreed; and 19% were unsure."
Edward Lynch, also a member of the Committee (as is WealthManagerWeb.com's editor, Kate McBride), and managing director of 401K Advisors Group, a firm affiliated with independent broker/dealer LPL Financial, notes in the statement released by Rostad that "there are many brokers who essentially meet the fiduciary standard of conduct, but are hamstrung because their B/Ds oppose it. These brokers, I think, support the legislation because they believe it's the right thing to do for their clients and their industry."
Rostad notes in the statement that Lynch feels fortunate to have no such difficulties with his own B/D.