More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
Denise Voigt Crawford, Texas Securities Commissioner and president of the North American Securities Administrators Association (NASAA), said during the conference call that the House version of reform, which establishes a fiduciary duty and calls for harmonization of regulations for B/Ds and advisors, "will align the legal amendments of broker/dealers with the expectations of their clients. There is an assumption by clients that their interests are first when seeking investment advice."
It looks as though Senator Tim Johnson (D-South Dakota) is the major hurdle in getting the House fiduciary language adopted. Johnson, along with Senator Michael Crapo (R-Idaho), crafted the Senate provision calling for the SEC study, and both serve as Senate conferees.
"Because the Senate bill serves as the base text for the conference, the legislation will need to be amended if the House's more pro-investor approach is to prevail," Roper of CFA noted during the conference call. And Johnson, she said, "is in the position to caste a crucial vote on the [fiduciary] issue."
Johnson is also expected to replace Senator Christopher Dodd (D-Connecticut) as chairman of the Senate Banking Committee when Dodd retires early next year. With Johnson as head of Senate Banking, Roper said that the options of "getting a legislative fix" on the fiduciary issue, assuming the House language is not adopted, would not look good.
House Financial Services Chairman Barney Frank (D-Massachusetts), who serves as the chairman of the conference committee, released on Tuesday, June 15, on behalf of the House conferees, the House offer on investor protection, which includes the fiduciary issue, along with regulatory improvements for the SEC.