More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Nearly 18 months after the economic crisis erupted, SEC Commissioner Luis Aguilar, in a speech before the 2010 Mutual Funds and Investment Management Conference on March 15, offered some steps to mend investors' sense of betrayal and loss of faith in the financial system.
In the speech in Phoenix, sponsored by the Investment Company Institute and the Federal Bar Association, Aguilar began his comments by revisiting the quote, "Investing is an act of faith," from the landmark 1999 book, Common Sense on Mutual Funds, by John Bogle. Bogle, founder and former CEO of Vanguard, said in December that because of the recent crisis the quote should be revised to say, "the faith of investors has been betrayed." Aguilar said that while the crisis created a clamoring for radical change, any such change should be "oriented toward the needs of investors."
One of the main concerns of those investors, he said, was how a new systemic risk regulator would be deployed. Aguilar said he didn't want the new regulatory body to be too focused on institutions that were "too big to fail" while ignoring "retail investors by thinking of them as 'too small to matter.'"
The question of who defines systemic risk was spelled out in legislation by Senator Christopher Dodd (D-Connecticut) that he released March 15. Dodd wants the Federal Reserve to play a big role in this area--the legislation would create a new division within the Federal Reserve to protection financial consumers--while Aguilar, who spoke before Dodd unveiled his reform bill, would prefer a "council of regulators." Aguilar believes that dividing up the regulatory power would "ensure a complimentary relationship between the primary regulator and the systemic risk regulator."
Aguilar said that how the risk regulator was implemented could greatly impact the mutual fund industry. If the regulator was too centered on banks, he said, then the regulator "may want money market funds to be regulated as banks, and/or want them to be required to have some sort of insurance to protect shareholder assets."
To view an analysis of how Dodd's legislation may affect advisors, please click here.
To read Aguilar's entire speech, please click here.