More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- 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.
A cloture vote on the Senate version of financial reform failed Wednesday, May 19, as Democrats did not garner enough votes to finish debate on Senator Christopher Dodd's (D-Connecticut) reform bill. The cloture vote will be taken up on Thursday, and if it is approved, further debate on current amendments will be limited to 30 hours and a halt would be placed on the introduction of new amendments.
What does O'Neill think about the pending Senate reforms bill? He told Wealth Manager that, "There are pieces that are not in the bill that jump out at me as more important than anything that's in the bill--and I've said this to some of the leading members of the Senate committees. I think we should pass a law that says it's illegal in the United States for anyone to give or receive a home mortgage without a 20% equity downpayment, and the 20% equity downpayment should be forever stapled to the instrument, so that, even if the instrument gets traded, the financial system always has a 20% equity component vis-?-vis outstanding mortgages," so you can't strip the equity away from the payments in the securitization of those mortgages.
Too much leverage in the system
"And I would have a parallel reserve equity requirement for all kinds of financial transactions, so effectively, de-leverage the system from whatever it is now, to five-to-one [leverage to equity] so that the system is always protected. [It] doesn't mean that individual things will [not] go wrong or individual companies will [not] go wrong, but I believe we should be very interested in systems integrity--in the integrity of the financial system. I believe the only way to get that is to have really large reserve requirements so that when an individual mortgage or a region of the country with downward economic conditions begin to unfold, if you have a 20% equity provision, after somebody fails to make three or four payments, you still have, arguably, 18% of their equity to deal with them, rather than dealing with the principal because there isn't any equity component."
In general, O'Neill's "indictment of the bill" is that, "to too great an extent," he explains, the bill is "about creating new, really smart ways to deal more quickly with the next crisis rather than setting out to assure we don't have a next crisis of this kind because we have enough equity protection in the system and reserve protection in the system that we never have one of these again."
"I'm not a great fan" he adds, "that the next time we'll have 'living wills'--it just seems to me, crazy."
And what of pending legislation in the bill about the extension of the fiduciary standard of conduct to broker/dealers who provide advice to investors? O'Neill says, "It's an important distinction--I think people who represent themselves as being a fiduciary, which means having the same interest as the advisee, ought to be required to be a fiduciary and not have a contrary or even any kind of other interest--if you're exercising the responsibilities of a fiduciary, I think that ought to be clear and clean and there shouldn't be any ambiguity at all."
Comments? Please send them to email@example.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.