More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- 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.
State securities regulators had a few pressing issues on their minds associated with the implementation of the Dodd-Frank Act as they convened their annual conference in Baltimore on Monday: how progress of "the switch" of advisors from federal to state regulation is going; what the potential of applying the fiduciary duty to brokers means for re-forming business models; and what the mid-term elections mean for advisors and the Dodd-Frank Act.
The North American Securities Administrators Association (NASAA), state regulators' trade group, convened the three-day conference in Baltimore. NASAA and the Securities and Exchange Commission (SEC) have been working together to iron out details of the switch, which refers to the provision under Dodd-Frank requiring approximately 4,000 investment advisors with assets under management of less than $100 million to switch from federal to state regulation by July 21, 2011.
John Walsh, associate director of the SEC's Office of Compliance Inspections and Examinations (OCIE), told NASAA attendees that the SEC and NASAA are working together "very well" on the switch details and that the SEC plans to have a proposed rule concerning the switch out between October and December.
"Before December, you should hear what the SEC's plan is [regarding the switching of advisors], and you will be able to comment," Walsh said. He directed attendees to the newly created section on the SEC's website devoted to updates on the Dodd-Frank implementation progress. The SEC is already planning for how it will conduct exams after the switch occurs, Walsh added. For instance, he said the SEC wants to make sure that state examiners have all of the details about investment advisor exams the Commission conducted on specific firms, and what the SEC found. "We don't want to create regulatory arbitrage," he said.
Along with the shift of investment advisors will also come the shift of private fund managers having to register with the states. Kristina Staples, chief compliance officer at JER Partners, said in her comments at the conference that private fund manager registration will present "a real challenge" for the states because private funds lack a "real infrastructure" for the states to look at. Staples also pointed to a loophole in Dodd-Frank which exempts private fund firms with from $100 million to $150 million from registering with the SEC.
As for the mid-term elections, James Thurber, director of the Center for Congressional and Presidential Studies, told attendees that the regulatory process of implementing Dodd-Frank will be impacted by who's elected. Thurber predicted that the Republicans will take back the House by a slim margin, and gain from six to eight seats in the Senate. Republicans will use their control to attempt to roll back portions of healthcare and Dodd-Frank, he said, but they won't be able to. Republicans will however "slow walk" Dodd-Frank through the process.
Thurber pointed to what he called the "endangered species" in Congress: moderate Republicans. "Conservatism is on the rise," he said. Working across the aisle, he said, "is going to get harder."
Congressional committee chairs like Rep. Barney Frank, chairman of the House Financial Services Committee, who's very liberal, will be replaced with someone who's very conservative, Thurber said. The end result of the mid-term elections will be congressional deadlock.