More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- 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.
Should advisors be wary of the Consumer Financial Protection Bureau’s (CFPB) regulatory arm reaching them? Yes, says Fred Bellamy, a partner with the law firm Sutherland in Washington, D.C. Advisors should be “concerned” Bellamy says that the CFPB’s regulatory powers could reach into their financial planning-related business activities.
While the Dodd-Frank Act specifically states that the CFPB can’t regulate activities that are overseen by the Securities and Exchange Commission (SEC), the broad brush of advisors “generally provide an array of services,” Bellamy says, “and while their core business might purely be investment advisory functions with respect to securities, it is those activities outside the core of what I will call federal investment advisory services, where the Bureau (at least under the [Dodd-Frank] statute) would seem to have the ability to assert some jurisdiction.” Any sort of advice “that’s more financial planning,” he says, for instance, “that has to do with [advisors’] clients’ credit situation—credit cards—or refinancing their mortgage that’s connected to an overall investment advisory program” could indeed fall under the CFPB’s purview.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., said during a speech on Tuesday before New York University Law School’s fourth annual Global Economic Policy Forum that the White House was days away from nominating a director to head the Consumer Financial Protection Bureau (CFPB), according to the New York Times, and that he would support Warren, the Harvard law professor and chief architect of the CFPB, to head the bureau if she was nominated. However, Dodd said once again that Warren would face stiff opposition from Republicans and the financial industry if she was nominated.
Since being named by President Obama as what amounts to the chief point person in charge of constructing the CFPB, Warren has voiced her opinion publicly—twice that I’ve witnessed--about how she sees the bureau functioning. During a new weekly live video chat series called “Tuesday Talks,” which aired on WhiteHouse.gov, Warren said the bureau’s mission will be to focus on credit, in its many forms. The last 30 years,” she said, “have been a wild West of consumer credit” with 50 million American families now unable to pay off their credit card debt.
Her big impetus will be to provide consumers with shorter and clearer disclosures when it comes to mortgages and credit card agreements. The CFPB, she said, will “drive toward” getting “markets to work for families.” What does it take to make that happen? she asked. "It doesn’t take layering on more disclosure that people don’t understand. This is about "simple products," making it easy to tell what they cost, and having an honest place for families to see what the costs are so they can compare products.
Under the Dodd-Frank Act, which created the CFPB, “tricks and traps” for consumers can’t be created anymore, Warren said. She made a point of noting that the CFPB is consumers’ agency. “You need to invest in us, learn what we’re doing, and hold our feet to the fire,” she said. That goes for advisors, too.