More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- 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.
As the Senate and House conferees get back to work on Tuesday, June 22, the critical vote on whether to apply a fiduciary standard to brokers is expected. The conferees will also vote on whether to approve an amendment offered by Senator Tom Harkin (D-Iowa) that would classify equity indexed annuities (EIAs) as insurance products, and therefore preempt having EIAs regulated as securities by the Securities and Exchange Commission (SEC).
Senator Christopher Dodd (D-Connecticut) has said that Senator Tim Johnson (D-South Dakota) is working on a compromise to the House's language calling for a fiduciary duty for brokers. Johnson drafted the original language calling for an SEC study of gaps in regulation for advisors and brokers, instead of imposing a fiduciary duty on brokers, as set out in the House bill.
The North American Securities Administrators Association (NASAA) is also pleased that the conferees have agreed to raise the state investment advisor asset threshold from $25 million to $100 million in assets under management (AUM) and permit state advisors within $25 million to $100 million in AUM that are required to be registered in 15 or more states to remain being examined by the SEC.
But SEC Chairman Mary Schapiro has raised concerns about whether the states would have adequate means to regulate the onslaught of new advisory firms to examine; raising the asset threshold would shift about 4,200 SEC-registered advisors to state jurisdiction. Denise Voigt Crawford, president of NASAA and the Texas Securities Commissioner, said in a recent conference call with reporters that the SEC has failed to examine about 3,000 advisory firms, so if the states win jurisdiction over more firms "that would be an improvement." The SEC, Crawford continued, has stated that the agency plans to focus its examination efforts on the larger advisory firms.
Other critics worry that with state budgets in turmoil, the states will lack the adequate resources to exam advisory firms. But Crawford said during the conference call that while it's true that some "states are experiencing major resource problems; states are not actively cutting budgets for securities related efforts." Crawford also pointed out that the states have entered into a Memorandum of Understanding (MOU) in which they will combine their resources when examining advisors.