More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
State regulators and the Securities and Exchange Commission (SEC) will meet soon to iron out the details of shifting nearly 4,000 advisors from federal to state supervision. The final financial services reform conference bill stipulates that advisors with up to $100 million in assets will now be regulated by the states, a fact that's drawing cheers and jeers from those in the industry.
Denise Voigt Crawford, Texas Securities Commissioner and president of the North American Securities Administrators Association (NASAA), says that as it stands now, "a group of states have taken the lead on the transition issues, they have put together a transition protocol, and we're going to be meeting with the SEC very soon." Firms, she says, will have a year to make the transition. Crawford says it's important to note that while the reform bill gives the states oversight of advisors with up to $100 million in assets, those advisory firms that are required to register in at least 15 states can opt to still be regulated by the SEC.
The states have been lobbying for some time to get more purview over advisors to address what Crawford says has been a "long-standing problem"--the fact that 3,000 advisory firms have never been examined by the SEC. "The states felt that was inappropriate and put the investing public at risk," Crawford says. State regulators "don't blame the SEC [for not examining these firms] because the SEC has limited resources; we believe the SEC's resources should be geared toward the bigger firms."
SEC Chairman Mary Schapiro told Investment Advisor in an interview earlier this summer that she worries that the states will lack the resources to examine more advisory firms. Former SEC Chairman Harvey Pitt told IA in an e-mail message in mid-July that he also doesn't "believe the states can regulate advisors, nor do I believe they should. We need national regulation of advisors, not mixed regulation." The possibility of conflicting standards, he continues, "is very real as a result of this."
But NASAA's Crawford argues that despite the fact that most state budgets are in peril, "it's much more economical and efficient for the states" to examine these advisory firms. "There's no question about it, states are really strapped," Crawford says. "All levels of government are strapped, so we've done a number of things to prepare for that eventuality," she says, including states entering into a Memorandum of Understanding (MOU) in which they will combine their resources when examining advisors.--Melanie Waddell