More On Legal & Compliancefrom The Advisor's Professional Library
- Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered. Otherwise, they are subject to severe penalties.
- 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.
When it comes to the fiduciary standard, and the six-month study that the SEC will conduct to determine whether brokers should be held to such a standard, Capital Analysts President and CEO Matt Lynch says advisors "want to be sure the SEC seeks and gathers input from the industry as to how to implement these important changes.
"I've been involved in a number of meetings with the SEC and FINRA, and I've said I think there is a difference between disclosure and transparency, [and] that ultimately what [the SEC] should be doing is making it easier for the investor to understand the nature of the relationship between themselves and the advisor--including how the advisor is paid, who's paying him, and where any conflicts of interests may exist. I believe a different way of providing that financial literacy to the client would be important to add to the SEC regulations. My concerns would be that the SEC produce guidance subject to interpretation but doesn't really give the industry enough information to take action. I think changing the way we communicate with clients would be a good thing."
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