More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
While Senator Christopher Dodd's financial services reform bill, as it currently stands, excludes a fiduciary standard for brokers, Don Trone, CEO of Strategic Ethos--and founder of Foundation for Fiduciary Studies--says he doesn't think proponents of the fiduciary standard "are losing any significant ground." The momentum, he says, "is still toward a fiduciary standard, and we're just going to take a more prudent timeline to get there. The wirehouse leadership, even post Dodd, continue to talk about embracing a fiduciary standard."
Ultra-high-net worth folks, too--particularly after the Madoff Ponzi scheme--are embracing "fiduciary-like" standards as well, Trone says. "The ultra-high-net-worth have an aversion to the word fiduciary because...the term has been associated with private trusts and their roles on philanthropic boards," he says. High-net-worth families "feel they are incurring liability in the management of their own wealth, and they don't like that position." However, after the Madoff scandal, there's been a "very strong reaction from the wealthiest families around the world for someone to take the initiative to define standards for wealth management," Trone says.
That is why, he says, Strategic Ethos along with Charles Lowenhaupt, the CEO of LGA Global Advisors, have developed just such wealth management standards and put them out for public comment on the Institute for Wealth Management Standards' Web site, wealthstandards.org.
The comment period will run for another quarter. "Charles and his global council--which is made up of some of the top advisors to some of the wealthiest families around the world--developed the principles for wealth management, and once they were completed with the principles, they asked me to then define the standards, the process to fulfill the principles," Trone says.