More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
Moderated by the head of RBC U.S. Wealth Management and CEO of RBC Capital Markets Corp. John Taft--who is also chairman-elect of SIFMA--the panel discussed the implications of the reforms bill's passage and their take on fiduciary duty. This editor is a member of The Committee for the Fiduciary Standard.
Taft was joined by panelists Robert L.D. Colby, partner at the law firm Davis Polk and Wardwell LLP, Charles Johnston, president of Morgan Stanley Smith Barney and Kevin M. MacMillan, associate general counsel at Bank of America Merrill Lynch. They appeared agitated about the Senate passing the reforms bill.
The bill "Gives SEC the authority to impose a fiduciary duty on brokers who give investment advice--the advice must be in the best interest of their customers," according to the summary release from the House Financial Services Committee. The SEC must conduct a six-month study of whether brokers who provide advice to investors should have to provide that advice under a fiduciary standard of care as embodied in the Investment Advisers Act of 1940. For more on the bill, please see "Financial Reform Bill and the Fiduciary Standard for Brokers."
But it appeared that the panel felt that the definition of fiduciary duty was up in the air--when one audience member asked for a definition of fiduciary duty, and Colby replied, "a fiduciary owes a duty to a customer." There was laughter and panelists noted that anyone could say that. Colby acknowledged that fiduciary duty under the Investment Advisers Act of 1940 was more "defined."
After more inconclusive discussion on how to define fiduciary duty, Taft asked what the industry should do, "dilute it, water it down, and dismember the fiduciary standard of care?
Well, "we're on the record saying fiduciary duty d is advisable," MacMillan countered, adding that his firm believes it "can provide a quality product to customers...and want to be viewed as providing transparency to the client. To dilute or water it down is a cynical view."
Others in the audience were concerned about not being able to sell "alternative" securities that pay high commissions under a fiduciary standard, and said small broker/dealers would not survive if they couldn't sell those. Taft later pressed for what those securities were, and the participant mentioned "oil and gas" and "non-traded REITs." Taft acknowledged that the "concern is legitimate--how do you survive in the new world order?" He noted that SIFMA is working to develop a proposal on how the fiduciary standard is applied that "preserves client access to as many of the products and services they get from us...who they work with...what they pay us...if it isn't done right it will be a problem for us all," adding that this is "the rubber meeting the road."
Taft mused about the possible range of outcomes if the SEC does mandate the fiduciary standard after the study. He noted a range from something "completely benign," to "completely transformational," and indicated he expected something in between. But, he said, there remains a great deal of uncertainty--and asked the panel if it would be the investment advisor fiduciary standard?
Colby--a former SEC staffer--explained that the SEC does not have to "adopt rules at all," after the study. But if they do, it would be the investment advisor fiduciary duty--"act in the best interests of the client, disclose conflicts of interest," obtain consent.
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.