More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- 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.
Carlo di Florio, the director now for 13 months of the SEC’s Office of Compliance, Inspections and Examination (OCIE), said Friday that considering the budget difficulties faced by the Commission, that “we’re spending a lot of time picking our spots” when it comes to examining RIAs.
One way OCIE is doing that, he said in a lunchtime speech and in a separate interview at the Investment Adviser Association (IAA) compliance conference in Washington, was using the tactical expertise in the SEC’s new Risk Analysis and Surveillance Unit to help implement the strategic focus from the Commission’s division of Risk, Strategy, and Financial Innovation to identify and then examine higher-risk firms.
That allows OCIE, he said, to “develop the models that allow us to look at risk in a more sophisticated” manner. Di Florio, a soft-spoken attorney who joined the Commission in January 2010 from PricewaterhouseCoopers, where he was a partner in PWC’s Financial Services Regulatory Practice, said in the interview that “the SEC has been struggling with our budget for the last couple of years,” so “we have to be more risk-focused.”
Di Florio said that “with the funding we had last year, we were able to bring lots of talent” to allow the SEC to oversee sophisticated financial instruments like structured products. “We hope to be able to continue recruiting” that kind of talent, he said.
Di Florio mentioned the recent appointment of former Goldman Sachs global CIO Eileen Rominger (right) as the director of investment management as an example of the kind of talent that Chairman Mary Schapiro has been attracting to the Commission, where the culture of the SEC is changing under Schapiro’s leadership.
Rominger herself spoke briefly at the conference as well, noting that it was her first speech to any group as a regulator, rather than as a portfolio manager, not counting her testimony before Congress on her 16th day in her new job at the SEC.
She preceded di Florio to the lunchtime lectern. IAA Executive Director David Tittsworth (left), himself a lawyer, got a laugh from the audience of compliance professionals in his introduction of Rominger when he said, “I think it’s fantastic that she’s not an attorney. She’s a real portfolio manager!”
Rominger told the group that she “understands the difficulties you face. Now more than ever it’s important not only to have good compliance,” but to have the compliance department of an advisory firm “build a good corporate culture of ethics.” She said the SEC has “the same goal as you do: to further the fundamental fiduciary relationship you have with clients.”
In di Florio’s speech, he addressed OCIE’s policy on its examiners, saying that to make RIA exams “more efficient and effective,” OCIE is working on “significant improvement to training examiners” so they have a “baseline competency” of expertise that is more consistent across the Commission. Moreover, he said that the SEC is taking its own medicine, having named its own chief compliance officer.
“It’s insufficient to examine only 9% of advisors every year,” he admitted, pointing to FINRA’s record of examining more than 50% of its member firms each year. That goes back to the funding issue for the SEC, which he noted could be solved in one of several ways, either through a user fee approach to exams, or through establishment of an SRO for advisors like FINRA, though he noted that an SRO would “have its own costs associated with it.”
Regarding Dodd-Frank implementation when it comes to the transfer of some 4,000 RIAs to state oversight, he reported that the Commission is holding biweekly conference calls with NASAA, the state securities regulators association, to ease that transition. He also noted that while the SEC is losing oversight of those RIAs with less than $100 million in AUM, the Commission is “getting a lot of new registrants” from managers of private investment vehicles, notably hedge fund and private equity managers.