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.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
When it comes to the financial services reform bill agreed to on June 25 by House and Senate conferees, "the biggest challenge for independent broker/dealers, financial advisors, and consumers will be what is not in the nearly 2,000 pages of the bill: unintended consequences," said Dale Brown, CEO of the Financial Services Institute, in a June 27 e-mail interview. While Brown says he has "great faith in the adaptability and ingenuity of our members' business model," he nevertheless worries that "the legislation will result in more cost and increased regulatory complexity." As for the fiduciary standard that will be studied by the SEC under one provision of the massive bill, Brown said "We are very concerned that small investors will not reap the benefits of a fiduciary standard because they will not be able to find an advisor they can afford. Avoiding that unfortunate outcome will be the focus of engagement with the SEC as they interpret and implement the hundreds of studies, reports, and rules this bill mandates."
Reaction to the bill, which should be approved by both Houses of Congress the week of June 28 and sent to President Obama for his signature before the July 4 Congressional recess, was swift from the many industry associations and lobbying groups whose members will be affected by the bill.
David Tittsworth, CEO of the Investment Advisers Association, noted in a separate e-mail interview on June 27 that "investment advisors will be dealing with this legislation for years to come," and that it remains to be seen "whether or not the bill represents a net 'win' or 'loss'" for advisors and their clients. Agreeing with Brown on one point, Tittsworth wrote that the legislation likely will result in a wide range of new regulations "that could increase the complexity and burden of compliance for all advisory firms." While acknowledging that "the legislation sets some parameters for certain issues, such as "harmonization" of broker/dealer and investment advisor regulations, the real-life impact will largely depend on how the SEC implements the legislation."
Tittsworth went on to say that "raising the $25 million threshold to $100 million alone will result in a significant reduction in the number of SEC-registered investment advisors," and that "other critical questions, such as whether an SRO is warranted, will be the subject of study and potential future action."
That self-regulatory organization (SRO) was on the mind of the FSI itself last week. When it became clear that the bill would include the six-month study by the SEC on applying a fiduciary issue, the FSI released a statement by Brown saying ""We applaud the leadership of Senator Tim Johnson (D-SD) and others who understand that enhancing investor protection also includes avoidance of unintended consequences. We will work with the SEC as they conduct the study and consider a fiduciary standard to ensure that small investors have access to affordable and quality financial advice, products and services." In the statement, the FSI said its "ultimate goal has been, and remains, a standard of care that works in all client situations and in all business models, combined with an industry-funded self-regulatory organization for investment advisers. FSI has supported the inclusion of the SEC study in the final bill throughout the legislative process. We believe the study represents the best available opportunity to achieve our goals."
On June 25, the Securities Industry and Financial Markets Association (SIFMA)'s president and CEO Tim Ryan released a statement that included positive statements: "Much of this new law should help to restore and maintain confidence in U.S. financial markets...such as the establishment of a systemic risk regulator, resolution authority, and a new federal fiduciary standard for retail investors." But Ryan warned as well that "this is a tough law that will also have profound effects on the operations and cost structure of most financial services companies and financial markets."
On June 25, the Financial Planning Coalition--a collaboration of the CFP Board, the Financial Planning Association (FPA), and the National Association of Personal Financial Advisors (NAPFA)--issued a statement commending the Congressional conferees for "laying the foundation for an important consumer protection that provides the average American investor the knowledge that his financial adviser is acting in his best interest."
On the fiduciary issues and the SEC study, NAPFA chair Bill Baldwin said in the statement that "giving the SEC rulemaking authority on fiduciary demonstrates Congress's good faith efforts to provide the strongest possible consumer protection for all American investors."
The Coalition had recently joined forces with the Consumer Federation of America, North American Securities Administrators Association (NASAA--the organization of state securities regulators), and the Investment Advisers Association (IAA) in calling for the conference committee to adopt the House language on the fiduciary standard of care.
On June 24 Investment Advisor Washington Bureau Chief Melanie Waddell wrote about reaction to the bill's compromise on a fiduciary standard.
Vanguard CEO Bill McNabb discussed the reform legislation and the fiduciary standard in a speech he delivered to attendees of the Morningstar Investment Conference.