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.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Senator Herb Kohl (D-Wisconsin), a member of the Senate Banking Committee, has proposed adding a new draft amendment to Senator Christopher Dodd's financial services reform bill that would create an independent oversight board to regulate financial planners.
Senate Banking Committee Chairman Christopher Dodd (D-Connecticut), chairman of the Senate Banking Committee, has ended bipartisan talks as of March 11 on his financial services reform bill, which he now plans to release on Monday, March 15. Dodd said in a release that he plans to hold a full committee markup the week of March 22.
Jaret Seiberg, an analyst with Washington research firm Concept Capital, says that "we expect Dodd's draft will propose a tougher Consumer Financial Protection Agency (CFPA) than the market has been expecting." Dodd, Seiberg says, "is not expected to include a requirement that the banking regulators approve what the CFPA proposes. That raises the prospect for an out-of-control CFPA that forces banks to take unprofitable actions. While this is a short-term risk, we believe the final draft will be much more moderate. Dodd must take some radical positions at the committee level so he has room to negotiate with [Senator Richard] Shelby before full Senate action on the bill."
The Financial Planning Coalition--comprising the Financial Planning Association (FPA), the National Association of Personal Financial Advisors (NAPFA), and the CFP Board--has been lobbying members of Congress to support the idea of creating an entity that would regulate financial planners. The independent oversight board under Kohl's amendment would be housed within the Securities and Exchange Commission, and it would be up to the SEC to appoint members of the oversight board.
Kohl's proposed amendment would expand the definition of financial planner to include investment advisors and brokers and "anybody who holds himself out to the public as a financial planner and provides, or offers to provide, directly to individuals advice with respect to the management of financial assets in not fewer than two areas of financial planning, including--investment planning, income tax planning, education planning, retirement planning, estate planning, and risk management."
Bob Glovsky, chair of the CFP Board, says that the SEC "is aware" of the oversight board and "has some concerns about funding." Glovsky says most members of the Senate Banking Committee, including Dodd, are supportive of the oversight board. But Kohl's proposal is running into opposition from groups like the Investment Adviser Association (IAA) and the National Association of Insurance and Financial Advisers (NAIFA).
David Tittsworth of the IAA said that his group has "expressed concerns that the financial planning coalition's proposal shoud not subject investment advisors to additional regulation." Moreover, Tittsworth said the IAA is "not aware of any regulatory gaps in the current regulatory framework governing investment advisors, many of whom perform additional services in addition to providing investment advice."
Tom Currey, president of NAIFA, says that NAIFA opposes the Kohl amendment "because it does not just seek to simply regulate currently unregulated individuals who call themselves 'financial planners.' Rather, it would establish a new SRO for 'financial planners' and effectively impose another layer of regulation on many NAIFA members who are already regulated at multiple levels: namely by state insurance commissioners, state securities regulators, FINRA, and the SEC, depending on which licenses and registrations they hold." Curry says that the issue of holding all types of advisors to fiduciary standards "would best be addressed" in the amendment proposed by Senator Tim Johnson (D-South Dakota), which would require the SEC to conduct a comprehensive study of "the current regulatory environment" for advisors and brokers.
The board would also investigate complaints of non-compliance and would conduct disciplinary proceedings and impose appropriate sanctions for non-compliance with the board's standards. Glovsky says that the Coalition envisions that the education and exam requirements set up by the oversight board would not be as rigorous as the curriculum that's set up for the CFP mark. "We envision the education and exam requirement wouldn't be quite as high as [the CFP curriculum] initially," he says.