More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- 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.
As part of its mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission (SEC) is reviewing and analyzing the need for enhanced examination and enforcement resources for investment advisers.
In conducting this study (called for in Section 914 of the Dodd-Frank Act), the SEC is required to consider whether it should seek congressional authorization “to designate one or more self-regulatory organizations to augment the Commission’s efforts in overseeing investment advisers.”
The SEC must submit a report to Congress, including recommendations for regulatory or legislative action, by Jan. 21, 2011. To help prepare its study, the SEC has sought comments from the public and NASAA replied late last month.
I’d like to share with you the key points of our Nov. 22 comment letter, which urges the SEC to join state securities regulators in reaffirming our commitment to investors by recommending the retention of full jurisdiction over investment adviser registrants.
When it comes to the important subject of investment adviser regulation, there is no system better than governmental collaboration between the states and the SEC.
We also noted the proven track record of the states regarding investment adviser regulation, citing the investment adviser examination programs and resources that were documented in the comprehensive report that NASAA previously supplied the SEC in connection with its Section 913 fiduciary duty study.
Among other arguments, we pointed out that in light of the anticipated increase in budget and resources for the SEC and the concurrent decrease in investment adviser firms that will be registered with the agency, the question of designating one or more SROs over investment advisers to improve the frequency of examinations is premature for consideration.
Our chief concerns with the designation of an SRO for the oversight of investment advisers include the accountability and conflict issues that always have been inherent to the SRO model.
NASAA urged the SEC to conclude that investment adviser regulation is a governmental function that should not be outsourced to a private, third-party organization that does not have expertise or experience with investment adviser regulation.
Any perceived benefits to the investing public of designating an SRO for the oversight of investment advisers would be outweighed by the SRO’s direct and indirect costs, opaque structure, and lack of accountability and transparency.
We believe that an SRO cannot match the accountability of government regulators, nor the proximity and familiarity of state regulators, in particular, when considering investor protection and regulatory thoroughness. The SEC should reject the argument that it cannot effectively regulate the investment adviser firms subject to its oversight.
Accepting full responsibility for these functions is not always easy, particularly in economic climates such as these, but it is a role the SEC and states have proudly accepted and served for decades. Investors should expect and deserve no less in the years to come.
As of early December, the SEC had received 18 comment letters about its Section 914 study. Organizations joining NASAA in expressing opposition to an SRO for IAs include the Investment Adviser Association, the American Institute of CPAs, the Managed Funds Association, the Committee for the Fiduciary Standard, Fiduciary360 and the Investment Company Institute. At this time, the only organization to submit a letter supporting an SRO for IAs was FINRA. All comment letters on the Section 914 study are available here.