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.
Both sides of the regulatory equation were on display during a Sunday morning session at FPA Denver 2010.
During the Q&A that followed a presentation on the implications and implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the audience applauded twice. The first time came after an advisor stepped up to the microphone and pleaded, in essence, for less regulation, which he suggested was strangling his firm’s prospects for growth. The second, presumably from different people in the near-standing-room audience, came when one of the panelists, Barbara Roper of the Consumer Federation of America, replied to said advisor by saying, “I can’t believe this same argument is still being used after the entire worldwide financial system nearly collapsed.” A second member of the panel, which this writer moderated, Joe Borg of the Alabama Securities Commission, added that “I can’t have one set of rules for the good people, and another for the bad.”
The third member of the panel, the FPA’s director of government relations, Dan Barry, kicked off the hour-long session by explaining that with Dodd-Frank, the Congress had “recognized the complexity” of the issues that Dodd-Frank sought to address, by allowing federal agencies like the SEC and the General Accounting Office (GAO) to implement the intent of Congress on everything from extending a fiduciary standard of care to brokers to determining if, and whether, a new SRO should be set up for all advisors.
The panel focused on three main processes taking place under Dodd-Frank: the fiduciary standard of care study by the SEC; the switch from SEC oversight to state regulation, which was expected to affect more than 4,000 RIA firms; and the GAO financial planning study to determine if there should be an independent oversight panel for advisors.
(The FPA’s newly redesigned website includes in its Government Relations section a readable summary of the implications for advisors of Dodd-Frank.)
Barry argued that the GAO study was likely “the most important of the 60 studies” mandated by Dodd-Frank; GAO was scheduled to make its report to Congress in mid-January, he said.
(Washington Bureau Chief Melanie Waddell addresses the five major studies to be undertaken by the SEC that will affect advisors in an article in the October issue of Investment Advisor.)
Roper sounded a warning bell, however, when it came to whether those regulators were up to the task of conducting the many studies and rulemakings which the bill mandates. Since the SEC did not achieve its goal of getting self-funding in Dodd-Frank, she suggested that the SEC finance issue “could blow up” over the coming months.
(The SEC has devoted part of its website to a focus on Dodd-Frank, including a timeline of the issues it will be addressing through July 2011.)
In a separate conversation after the panel, Roper argued that the success of Dodd-Frank would hinge on enforcement of any rulemakings made by the SEC and other regulators, but also said that if the Congress and regulators had merely used their existing powers when it came to issues like mortgage-backed securities, much of the financial and markets crisis of 2008-2009 could have been avoided.