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.
Addressing the Investment Company Institute's (ICI) 52nd annual membership meeting in Washington on May 5, Paul Schott Stevens, ICI's president and CEO, told attendees that the "landmark [financial reform] legislation will affect everyone in this room--as a consumer, as a saver, as an investor, not to mention as a financial services professional." The bill that ultimately passes, Schott Stevens continued, "will shape U.S. financial markets and influence our ability to compete in global markets. It will have a heavy bearing on how the American economy fares for decades to come."
Schott Stevens noted that the "thrust" of the reform bill has not been aimed at mutual funds or other registered investment companies. Rather, much of the legislation's emphasis, he said, is on controlling systemic risks.
Mutual funds, he said, have successfully "made the case that mutual funds do not pose broad risks for the financial system at large. As a result, our comprehensive system of regulation and oversight will remain largely unchanged and in the hands of the Securities and Exchange Commission." Noting that some in the fund industry have referred to "fiduciary" as "the 'F' word," Schott Stevens declared that "Those of us in the fund industry are fiduciaries--whether as advisors to a fund or directors on a fund board."
But others in the fund industry aren't so convinced that putting all types of advisors under a fiduciary mandate is a good idea. John Walters, president and COO of Hartford Life, noted on a panel discussion that requiring all advisors to adhere to a fiduciary duty would be a "huge change" that would ultimately be "damaging" to the industry.
Bridget Macaskill, president and CEO of First Eagle Investment Management, noted on the same panel that such a broad fiduciary edict would "lead to unintended consequences." Congress should move slowly in considering such a fiduciary measure, she added, because the "disruption to [mutual fund] distribution would be huge."