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.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Not long after the SEC released its “Study Regarding Obligations of Brokers, Dealers, and Investment Advisers," on Jan. 21, three brokerage heavyweights came out for the tougher standard of care.
Reuters reported on Jan. 24, that Sallie Krawcheck (left), president of Bank of America Global Wealth and Investment Management, said: “The U.S. brokerage industry should have a common, tougher standard for providing investment advice.”
On Thursday, Bloomberg reported that Brian Moynihan (right), CEO of Bank of America Corp. has come out in favor of the fiduciary standard. According to the article, Moynihan “said making brokers act as fiduciaries is compatible with the firm’s model, which is to do what’s right for the client.”
The Bank’s Merrill Lynch brokerage arm has 14,500 registered representatives.
On Monday, Mark Casady (left), chairman and CEO of LPL Financial, praised the SEC’s Fiduciary Study, and endorsed the fiduciary standard, saying: "We welcome the clarity that the January SEC Staff Report brings to the retail financial advice industry. In particular, we agree with the report's recommendation for a uniform fiduciary standard, as we believe this is right for investors, financial advisors and the industry. We are confident this would help drive greater consistency and evenhandedness in the supervision of the broker-dealer and advisory sides of our industry. This would be positive for financial advisors and their clients, the vast majority of whom are neither cognizant of, nor concerned with, different definitions for the standard of care between financial advisor business models,"according to a company announcement.
LPL Financial, the largest of the independent broker-dealers, went public in 2010. Many of the affiliated advisors at LPL are both broker-dealer registered reps and registered investment advisors. LPL has 12,000 affiliated advisors and “supports” 4,000 insurance company affiliated financial advisors, according to the release.
Krawcheck’s SIFMA Speech
In a speech to SIFMA last April, Krawcheck made similar remarks, saying that brokerage industry has a "choice of two roads," and noting that "the full service wealth management industry has lost share for the past decade to the independents, the on-line brokers, the retirement providers, and most recently, to the regionals."
In that speech last spring, Krawcheck relayed what clients had told her as she traveled around talking with them: "Our clients simply say, 'I have no idea what fiduciary is, but it sounds good so just please put my interests in front of yours and do what is right for me.'" She added that, "embracing reform will enable us to champion what is indisputably right for clients."
Suggesting then that reform was “inevitable,” she asked the SIFMA audience to consider this: “Rather than focus on each other, how about shifting our focus to our clients?” She added that what clients had asked for boiled down to this: “First, listen to our clients, listen so as to hear, understand and address their priorities; Second, do right by our clients by embracing our fiduciary responsibility for them, Third, fight for our clients to deliver a superior client experience.”
For the latest news and analysis on the SEC Study releases and related developments, see:
The Fiduciary Study:
The SRO Study: