More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Goldman Sachs settled SEC charges of fraud on July 15 regarding a Goldman Sachs offering of a CDO, ABACUS 2007-AC1, in which a Goldman Sachs client, a hedge fund, allegedly selected the deal's underlying mortgage securities on the basis of their likelihood to fall in value or fail, because it--and Goldman--intended to short that market. The SEC said in its suit that Goldman didn't inform the buyers of that third party's involvement in the security's creation, and that Goldman "misled" those buyers. See "Goldman Sachs Settles SEC Fraud Suit for $550 Million"
"Financial advisors are required by law to either meet the fiduciary standard or the suitability standard. In the fact situations discussed in this video, Goldman Sachs was required to meet the suitability standard, according to the Web site of The Committee for the Fiduciary Standard (the Committee). "This testimony is important to investors, in the view of the Committee, for one purpose and one purpose alone. It is an illustration of what the suitability standard requires and how it is starkly different from the fiduciary standard."
The Committee formed in 2009 to advocate, on behalf of investors, that regulators extend the authentic fiduciary standard to all who provide investment advice to retail investors.
In its release, the Committee praised the Senate's vote for the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act, expected to be signed into law by President Obama the week of July 19, directs the SEC to conduct an immediate, 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. The SEC can then write guidelines and rules for brokers who provide advice to do so under the fiduciary standard of care. This editor is a member of the Committee.
The Committee also released an analysis of the study, and urged that the SEC take "direct investor input"' and "full transparency" and that "all data and papers considered in developing the study be made publicly available."
With more than 800 members, the Committee is guided by a steering group of practitioners and industry leaders. The group's Fiduciary Statements have been signed by Nobel Laureates, academics and American leaders, and family office leaders who endorse the Five Core Principles of the fiduciary standard:
o Put the client's best interests first
o Act with prudence; that is, with the skill, care, diligence and good judgment of a professional
o Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts
o Avoid conflicts of interest
o Fully disclose and fairly manage, in the client's favor, any unavoidable conflicts
Comments? Please send them to firstname.lastname@example.org. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.