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.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
The Financial Planning Coalition--which includes the Financial Planning Association (FPA), the CFP Board, and the National Association of Personal Financial Advisors (NAPFA)--submitted its comment letter in the late afternoon of August 30. The Coalition told the SEC that the fiduciary standard that investment advisors follow under the Investment Advisers Act of 1940 should be the only fiduciary standard applied to brokers. "It's a pretty clear case that there already exists the correct fiduciary standard," under the 1940 Act, Susan John, president and founder of Financial Focus in Wolfeboro, New Hampshire, and the new chair of NAPFA starting September 1, told Investment Advisor. "Each state has accepted the same fiduciary standard; we don't think any changes [to that fiduciary standard] are in order."
The Financial Services Institute (FSI), however, says in its comment letter to the SEC that there should be a "new standard of [fiduciary] care" that should be "applicable to all financial advisors who offer personalized investment advice to retail customers."
John says that the Coalition will meet with SEC officials in the coming days to continue its lobbying efforts regarding fiduciary duty. Neil Simon, VP for Government Relations at the Investment Adviser Association (IAA) in Washington--which also filed its comment letter August 30--says IAA also plans to meet with SEC Commissioners, and no doubt the fiduciary study along with the "possible rulemaking will be high on the agenda."
One of the fears the Coalition has regarding an SEC rulemaking on fiduciary duty is that the regulator takes a "rules-based approach" in applying the standard to brokers and advisors--which is the regulatory approach taken by FINRA in overseeing brokers--instead of a principals-based approach. "Rules are designed to be broken," John says. "Also, rules don't account for changes in the environment or products--the rules adapt much more slowly than a principals" based approach.
As for a potential rulemaking next year regarding fiduciary duty and other regulatory reforms that will spring from the Dodd-Frank Act, John says she believes all advisory membership organizations "will have to shift their focus to help their members adhere to whatever [regulatory] standards" ultimately come out of the SEC and other regulators.
One of those possible changes that most industry groups like the Coalition and IAA oppose is having FINRA act as a self-regulatory organization (SRO) for advisors. Section 914 of the Dodd-Frank Act asks the SEC to study the possibility of FINRA acting as an SRO for advisors. Simon with IAA says that "it's not clear yet whether the SEC will request public comment" for this study, as the regulator is not required to do so under the statute. "Nonetheless," Simon says, "I have to believe the [SEC] would be open to receiving comments about it."