More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered. Otherwise, they are subject to severe penalties.
Whatever happened to the repeal of the broker/dealer exemption allowing brokers to give advice to customers--but not require a fiduciary duty to those clients? The Financial Planning Association (FPA) sued the Securities and Exchange Commission (SEC) over this rule--and won a court ruling requiring the rule to be overturned--in 2007. But that has not happened. Why?
Wealth Manager talked about this with fiduciary expert Ron Rhoades, in mid-March and again in May. Rhoades is an attorney, and director of research, chief compliance officer and private wealth manager for Joseph Capital Management, LLC. The exemption allows broker/dealers to provide advice as long as the advice is, according to the SEC, "solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor."
There's a great deal of debate going on about whether broker/dealers should put their clients' interests ahead of their own if they provide advice. If they have discretion over client assets, of course, they must be fiduciaries, but what about when they provide similar advisory services to investment advisors?
During the week of May 10, the Senate will debate amendments to its version of financial reforms--the Restoring American Financial Stability Act (S.3217). The House passed its version of reforms in December with a requirement extending fiduciary duty for broker/dealers who provide advice to investors. The Senate version originally had even farther-reaching fiduciary requirements, but these was stripped out in lieu of a "study" to determine whether broker/dealers should be required to put investors' interests ahead of their own. Now, at least two amendments to reinstate the fiduciary requirement have been filed, with more possible.
One way to, in practical terms, extend the fiduciary standard to providers or advice is to eliminate the broker/dealer exemption. Hear the exclusive WealthManagerWeb.com Podcast: "Ron Rhoades on the Status on the Broker/Dealer Exemption."
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.