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.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
John Walsh, associate director of the Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE), warned compliance officers on Thursday “not to back off” on their compliance due diligence, as SEC exams of advisory firms post-Dodd-Frank will increase in the short-term.
While the study the SEC performed under Section 914 of Dodd-Frank, commonly referred to as the SRO study, which looked at enhancing advisor exams, determined that the securities regulator will lack the resources in “the long-term” to perform an adequate number of exams on advisors, Walsh said at the Investment Adviser Association’s (IAA) compliance conference on Thursday, that “for some period of time after Dodd-Frank” advisors can expect more exams. “This is an important takeaway because I worry that [compliance officers] will say the SEC is not coming.”
The SRO report issued by the SEC stated that as the number of advisors has grown, along with their assets under management, the agency’s examination staff has dwindled. Between Oct. 1, 2004, and Sept. 30, 2010, the number of registered investment advisors (RIAs) increased 38.5%, from 8,581 advisors to 11,888 advisors, the study said.
SEC staff projects that SEC-regulated RIAs will grow to 13,908 in 10 years (from 11,888 in 2010), however, this projection only counts the number of RIAs with $100 million or more in assets under management (AUM) that would be under SEC supervision, not those with $100 million or less that would have to switch to state supervision, as mandated under Dodd-Frank.
Responding to a question on how a divided Congress would agree to a self regulatory organization (SRO) for advisors, Neil Simon, vice president for government affairs at IAA, said that an SRO for advisors is not a partisan issue. “There are certain members of Congress that are sympathetic to FINRA’s [Financial Industry Regulatory Authority’s] position” that it should be the SRO for advisors, Simon said. “It is entirely possible that Congress could act upon” an SRO for advisors and create legislation.
Scott Richter with JP Morgan Asset Management said at the IAA event that advisors should “let their views be known” about an SRO for advisors as “this train has not left the station yet.” Advisors still “have an opportunity to influence” the outcome.
Walsh with the SEC also said that the agency “is taking very seriously” the 180-day rule under Section 929(u) of Dodd-Frank which requires the SEC to conclude exams of advisory firms within 180 days. The first 180-day trigger event came in January, he said. If an exam is “too complex to resolve in 180 days,” Walsh continued, examiners can ask for an extension. He also warned attendees to be mindful that “the clock doesn’t start ticking on the 180 days until [the SEC] receives all of the documents” it has asked the advisory firm to provide.