More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
As debate on financial services reform nears ever closer in the full Senate, investors and consumer advocates are pressing members of the Senate to adopt a fiduciary amendment being sponsored by Senators Daniel Akaka (D-Hawaii) and Robert Menendez (D-New Jersey) that would replace Section 913 of Senator Christopher Dodd's (D-Connecticut) financial services reform bill, the Restoring American Financial Stability Act, asking for an SEC study of broker/dealer and advisor obligations with the House reform bill's provision requiring brokers to adhere to a fiduciary duty.
The April 23 letter--signed by Barbara Roper, Director of Investor Protections Consumer Federation of America; David Sloane, senior VP Government Relations & Advocacy AARP; Denise Voigt Crawford, President North American Securities Administrators Association (NASAA); and Leslie Reynolds, Executive Director, National Association of Secretaries of State--notes that Section 913 of the Senate bill "would delay reform for several years," and replaces a "stronger provision that would have required brokers and insurance agents to act in the best interests of customers when recommending securities. As currently written, the legislation requires the SEC to study and then adopt rules to address 'gaps and overlaps' in regulatory requirements for brokers and advisers, but it denies the agency the authority it needs to raise the standards that apply to brokers when they give investment advice to match those that apply to investment advisers providing the same service."
Brokers and insurance agents who sell securities, the group goes on to say, "routinely market themselves to investors based on the 'advice' they offer and use titles, such as 'financial adviser,' designed to encourage investors to believe they are in a relationship of trust. Under current law, however, brokers and insurance agents don't have the same legal responsibilities to act in the best interests of their clients as investment advisers do, and they sometimes abuse that relationship of trust."
Some of those in the insurance and brokerage industries "objected to the initial approach taken in the Senate bill, which would have regulated investment advice by brokers and insurance agents under the Investment Advisers Act," the letter goes on to say. "The House bill took a different approach to achieve the same end, requiring the SEC to adopt rules under the Securities and Exchange Act to require brokers to act in the best interests of their customers when giving personalized investment advice to retail customers. The language in the current bill may be no better than the status quo, and will not serve to protect investors from biased investment advice."