More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- 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.
John Walsh, associate director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), told attendees at the North American Securities Administrators Association’s (NASAA) annual meeting at the end of September that the SEC and NASAA are working together “very well” on the details associated with switching nearly 4,000 advisors from federal to state registration 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.