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.
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
Blaine Aikin, CEO of fi360 introduced the former Treasury Secretary to a record crowd of 450 attending the conference this year. Aikin remarked that the environment is ripe for nurturing the fiduciary discussion as he thanked the SEC for the Goldman Sachs suit, adding that this--along with the Senate hearings and Goldman Sachs representatives' testimony "give momentum to the discussion," of fiduciary duty. Indeed, the fiduciary issue is heating up to a rolling boil.
This week, Senator Arlen Specter (D-Pennsylvania), filed two amendments to the Senate's financial services reforms bill. Cosponsored by Senator Ted Kaufman (D-Del.), one of the amendments "imposes a fiduciary duty on all registered broker-dealers, and their agents and employees, who provide investment advice regarding a purchase or sale of a security or a security-based swap. The fiduciary standard, in legal terms, requires one to act in the best interests of the investor and to disclose specific facts relating to a conflict of interest." Specter's Web site notes that, "this amendment's higher standard of care is not limited to only those broker-dealers that provide services to retail customers but includes all investors," meaning that it's intended to cover retail and institutional investors.
Aikin introduced Knut A. Rostad, regulatory and chief compliance officer of registered investment advisor Rembert Pendleton Jackson, and chairman of The Committee for the Fiduciary Standard, who spoke of the importance of extending the fiduciary standard of the Investment Advisers Act of 1940 to all who provide advice to investors. The committee was actually borne of discussions that took place at last year's fi360 National Conference.
Rostad told of an extraordinary Friday meeting that members of the committee were invited to with a senior staffer for Sen. Tim Johnson (D-South Dakota). It was just before Johnson was to introduce an amendment to the Senate financial reforms bill--to substitute a study of whether investors' interests should be put first by brokers--for the requirement of the fiduciary standard for all who provide advice to investors. The aide asked whether there were questions in the proposed study that had already been answered. Rostad and members of the committee analyzed the proposed amendment and prepared a detailed six-page document that showed where there were already answers to the majority Johnson's proposed questions. This editor, a member of the committee, was at that meeting and participated in preparation of the document for Sen. Johnson.
Next, Aikins introduced Carlos Panksep, general manager of the Toronto-based Centre for Fiduciary Excellence, LLC., (CEFEX) and a well-known person to this fiduciary-centric crowd. Panksep spoke of the work his organization--which fi360 is affiliated with--does in auditing and certifying fiduciary firms such as investment managers and recordkeepers as fiduciaries. "This results in a seal of approval to signify leaders in the industry...ERISA plan sponsors have a responsibility to monitor their record keepers and managers," Panksep noted.
SEC Weighs In
Not present at the conference, but certainly a central player in the fiduciary discussion, SEC Chairman Mary L. Schapiro, in a May 6 speech, once again called on Congress to extend the fiduciary standard to broker/dealers: "Right now, investment advisers, as fiduciaries, have an obligation to provide advice that is in an investor's best interest -- and to avoid or disclose conflicts of interest. Broker/dealers, who earn transaction fees and sometimes incentives for guiding decisions towards one strategy or another, do not currently have to meet this standard, although they are subject to a more comprehensive regulatory regime.
"I believe that broker/dealers and investment advisers providing the same services, especially to retail investors, should meet that same high fiduciary standard. This is an issue that I hope will be addressed in regulatory reform legislation and one that is fully consonant with the principle of fairness that helped guide the development of the securities laws."
With lawmakers debating financial services reforms right now, it will be interesting to see how this all shakes out. Aikin notes that after the Goldman Sachs Senate subcommittee hearings, there's an "excellent chance for having the fiduciary standard extended to all who give advice on a retail level."
Comments? Please send them to firstname.lastname@example.org. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.