More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- 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.
With the House and Senate poised to hammer out a final version of financial services reforms, leaders of several of the largest family office advisors and family office associations are urging Congress to "Fight for All Investors and Put the Fiduciary Standard in Wall Street Reform."
They have signed a Fiduciary Statement, and invite all investment advisors and broker/dealers "rendering financial or investment advice to sign the Fiduciary Statement by going to the Committee for the Fiduciary Standard's website at www.thefiduciarystandard.org." (This editor is a member of the Committee.)
These family office leaders join a group of Nobel Laureates and Wall Street leaders who signed the Fiduciary Statement in March. They believe that investment and financial advice given to all investors should be in the investors' best interest under the fiduciary standard of care established by the Investment Advisers Act of 1940.
The House passed Wall Street reforms legislation in December requiring brokers who provide advice to retail investors to put the clients' interests first under the fiduciary standard, as investment advisors must. The Senate's version of reforms calls instead for the SEC to "study" whether brokers who provide investment advice "should be required to act in the clients' best interest." Currently brokers are not required to put their clients' interests before their own or their firms'--under their suitability sales standard of conduct. Yet, most investors believe that the advice they are getting from brokers is in their interest--even though it is not required to be.
The family office leaders call for the fiduciary standard to apply to all investors who receive advice--whether millionaire or more modest investor.
"This is a matter of simple fairness. All families should be able to access the same high fiduciary standard of investment and financial advice that wealthy families can access. Why should smaller investors be left behind?" asked Maria Elena Lagomasino, CEO of GenSpring Family Offices, said in the announcement.
The family office leaders who signed the Fiduciary Statement include:
President, TAG Associates, LLC
Chairman, Greycourt & Company, Inc.
Founder and CEO, Family Office Exchange
Maria Elena Lagomasino
CEO, GenSpring Family Offices
President & CIO, Federal Street Advisors, Inc.
President, Threshold Group, LLC
Thomas R. Livergood
CEO, Family Wealth Alliance , LLC
Charles J. Maxwell
Chairman & CEO, Meristem
Founder & CEO, Pepper International
President, Silver Bridge Advisors
"Investors need to understand the important differences between advisors and brokers who meet the fiduciary standard versus those who only meet the minimum requirements of the suitability or commercial sales standard. Most fundamentally, fiduciaries are hired to represent investors, while those following the suitability standard are permitted to represent their firms' interests, first. This is a huge difference. For example, fiduciaries must tell clients in writing how much they pay for the services and products they buy; they must either avoid or reveal and manage conflicts of interest, attaining informed client consent; and they must also control investment expenses. Those who just meet the minimum suitability standard are not required to do any of these things," Gregory Curtis, Chairman of Greycourt & Co., Inc., explained in the announcement.
"These firms serve wealthy investors worldwide. Their vocal support to extend the fiduciary standard to all investors speaks volumes of their professionalism and commitment to industry excellence," noted Knut A. Rostad, chairman of the Committee for the Fiduciary Standard. The committee, founded in 2009, advocates "for the fiduciary standard as established under the Investment Advisers Act of 1940."
Deputy Secretary of the Treasury Neal Wolin said May 27 in a speech to FINRA that the fiduciary standard won the "gold medal." It was number one among the five issues Wolin said the Administration will push for in the final Wall Street reforms bill. House Financial Services and Conference Committee Chairman Barney Frank is also widely believed to put the fiduciary standard at the top of his list.
As SEC Commissioner Elisse Walter noted in a May 5, 2009 speech:
"When your Aunt Millie walks into her local financial professional to ask for advice, she does not need to know whether the person on the other side of the table is a registered representative of a broker/dealer or an investment advisor. She should not be placed at risk by the fact that application of those labels may lead to differing levels--or at least different kinds--of protection. Instead, she should know, or be able to assume--consciously or subconsciously--that regardless of the title held by the person sitting across the desk from her, she will receive an appropriate and comparable level of protection...
"I believe that every financial professional should be subject to a uniform standard of conduct. In my view, that standard should require all financial professionals to act as fiduciaries at all times."
American leaders, including President Barack Obama and industry statesman and Vanguard founder, John Bogle; SEC Chairman Mary Schapiro; CFTC Chairman Gary Gensler; along with editors and columnists at The New York Times; and columnist Jason Zweig of The Wall Street Journal have all called for the extension of the fiduciary standard to brokers who provide advice to investors.
Kate McBride (email@example.com) is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.