More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
Geoff Davey, co-founder of Sydney, Australia-based FinaMetrica, has been traveling the globe for the past month, visiting South Africa, Zimbabwe—notably the beautiful Victoria Falls—Germany, the U.S. and, after the Financial Planning Association’s (FPA’s) conference in Denver, will trek back home to Sydney.
He’s been talking to financial firms and advisors about how to assess their clients’ risk tolerances. Davey’s company, FinaMetrica, helps advisors understand their clients’ risk tolerances, using a “psychometric” risk assessment that was developed with a team of academics in Australia. Advisors can then match that assessment to a risk-appropriate portfolio. See “FinaMetrica’s Davey Talks of Risk Profiling for Clients.”
This has given Davey and partner, Paul Resnik, who have been traveling to different countries, insights about how these countries are implementing new regulations on advisor conduct toward clients. In the U.S. of course, there is wide coverage of implementation of the Dodd-Frank Act financial reforms. Under Dodd-Frank, the SEC is currently studying “gaps” in the regulation of brokers and investment advisors, and whether to extend the fiduciary standard of conduct—to always put client’s interests first, before the advisor’s or firm’s—to brokers who provide advice to individual investors.
Britain Leads the Way
Britain, Davey says, is leading the way toward rebuilding investor trust in financial services with a “treating clients fairly” policy that is “changing the way advisors deal with clients,” Davey told AdvisorOne.com/Wealth on Oct. 8. South Africa may not be far behind, he notes. “South Africa used to follow Australia,” Davey explains, but they are “now following the U.K.”
Evolving Risk Profiles
FinaMetrica is keeping the Australian academics that work with the firm on its psychometric profiling tools very busy these days, Davey says, as they now have “370,000 completed risk profiles,” including many individuals who have been tested “multiple times.” This repeat profiling provides insight about how risk tolerance changes as individuals gain experience as investors and, of course, grow older. Davey says it can provide information comparing and contrasting younger and older investors, women and men, and risk tolerances of those with more or less wealth.
Davey participated in a roundtable discussion at FPA on Sunday regarding fiduciary responsibility.