More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
Within a month or so, the House Financial Services Committee will begin holding hearings on the Securities and Exchange Commission’s (SEC) report regarding fiduciary duty, which was mandated under Section 913 of the Dodd-Frank Act and handed to Congress on Jan. 21.
A draft report of the Committee’s oversight plan for the 112th Congress obtained by Investment Advisor shows that Rep. Spencer Bachus, R-Ala., chairman of the Committee, will be examining the SEC report regarding enhancing advisor examinations and the need to appoint a self-regulatory organization (SRO) for advisors, which was mandated under Section 914 of Dodd-Frank. The draft plan does not mention a specific timeline for a hearing on the Section 914 report. No doubt Sen. Tim Johnson, D-S.D., chairman of the Senate Banking Committee, will hold hearings on the reports as well, as Johnson said recently that Dodd-Frank oversight will be a priority for his Committee during this Congress.
While lawmakers have begun their review of the SEC’s reports on fiduciary duty and an SRO, the lobbying season for advisory trade groups has kicked into high gear. “Spring is going to be quite busy,” says Marilyn Morhman-Gillis, managing director of public policy for the Certified Financial Planner (CFP) Board of Standards. The Financial Planning Coalition—which includes the CFP Board, the Financial Planning Association, and the National Association of Personal Financial Advisors (NAPFA)—is “still digesting the [SEC] studies and doing a deep analysis to determine next steps.”
The Coalition, Mohrman-Gillis continues, “will aggressively support the SEC in its recommendation to extend the fiduciary standard of care to broker-dealers, and we will do all we can to make sure that the SEC retains oversight of investment advisers, especially fighting any effort that would lead to a delegation of this core responsibility” to the Financial Industry Regulatory Authority (FINRA).
Industry trade groups are also pushing lawmakers to adopt user fees to fund advisor exams in lieu of an SRO. As members of Congress review the report regarding beefed-up exams, “we believe they are doing so in an open-minded fashion,” says Neil Simon, vice president for government relations at the Investment Adviser Association (IAA) in Washington.
Indeed, Steven Irwin, commissioner for the Pennsylvania Securities Commission and 2011 legislative director for NASAA, agrees that “user fees are a very viable option.” David Massey, president of NASAA, adds that while FINRA along with another body could be appointed as SROs for advisors, he says that “it’s cheaper in the long run to go the user-fee route.” Another consideration that’s worth a look, he says, is a “pay-as-you-go” system to fund advisor exams.
More Money for the SEC?
Another big question that looms this year is whether Congress will provide the SEC with a funding boost. Leading Democrats on the House Financial Services Committee gathered on Capitol Hill in late January to sound an alarm over the SEC’s lack of funding to police the securities market.
Rep. Maxine Waters, ranking member on the House Financial Services Capital Markets Subcommittee, said during a press briefing Jan. 25 regarding SEC funding that “it’s interesting that Republicans have chosen 2008 as the year on which to base their funding cuts,” seeing as that was the year the nation’s financial markets collapsed. It was also in 2008, Waters said, when lawmakers “realized that the resources we had provided to the regulators of those markets had been sadly lacking. This was especially the case at the SEC.”
Congress failed to award the SEC self-funding in the late 2010 spending bill, and it appears as though any hopes of securing self-funding during the new Congress are fading. As Rep. Scott Garrett, R-N.J., the chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, said in a statement: “During our country’s current debt crisis, all branches of government—including Congress—have to tighten their belts and find ways to make their money go further.”