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.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Financial Planning Coalition held a conference call on Tuesday about its letters to Congress “urging support for the Securities and Exchange Commission (SEC) in establishing a fiduciary standard,” the announcement said, and urging Congress to adequately fund the SEC so that it could meet its regulatory responsibilities.
The Coalition includes three organizations: the Certified Financial Planners Board of Standards, Inc. (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors(NAPFA).
Funding for SEC Does Not Add to the Deficit
The letter regarding SEC funding, sent on March 8 to individual members of Congress, made the important point that funding the SEC adequately would not cost taxpayers any money, because the SEC already takes in more every year than Congress appropriates to the agency—sometimes hundreds of thousands of dollars more.
The Coalition’s letter said: “we note that the SEC is funded entirely through fees assessed to those who the SEC regulates; taxpayers do not bear the burden of funding the SEC. In short, SEC funding has no effect on the deficit. Due to current funding reductions, the SEC Enforcement Division is cutting back on investigations, important vacancies are going unfilled, and technology upgrades needed to deal with the daily influx of information have been cancelled. At the same time, the size and complexity of SEC oversight responsibilities are significantly outpacing SEC funding.”
The Fiduciary Standard of Care
“The Coalition has advocated for the fiduciary standard for financial planners and others who hold themselves out as advisors” to individual investors, explains the Professional Growth & Business Development Manager for NAPFA, Nancy Hradsky (left). The letter advocating extension of the fiduciary standard, sent on March 24, went to “the entire Congressional Delegation,” saying that the Coalition “supports the SEC in extending the fiduciary standard of care for personal financial advice to individual investors,” and urging Congress to support the SEC in implementing this as soon as possible. (This reporter is a member of the Committee for the Fiduciary Standard.)
We have “urged Congress to support SEC in creating a rule extending fiduciary standard of care, as it applies to investment advisors, to brokers,” says the CFP Board’s Managing Director, Public Policy, Marilyn Mohrman-Gillis (left). This “important consumer reform is long overdue.” In a recent survey conducted by the Coalition, she notes, “97% of investors agreed that a financial professional should put the,” investor’s interests first. Investors “need transparent, accountable markets where their interests would be placed first.”
Mohrman-Gillis added that they “anticipate that the SEC will move forward to implement Dodd Frank” legislation, in short order.
Asked about recent comments reported in the media from SEC’s Jennifer McHugh, senior advisor to Chairman Mary Schapiro, that the implementation of the fiduciary standard, as recommended in the SEC’s “Study on Investment Advisors and Broker-Dealers” would be moved to later in the year, Mohrman-Gillis noted that in “conversations with SEC staff and members of Congress [we have] urged the SEC to mover forward expeditiously.”
Does the Coalition disagree with Republicans led by Rep. Steve Garrett (left), R-N.J., who have vocally supported the views of SEC Commissioners Kathleen Casey and Troy Paredes that more study is necessary?
“If the SEC believes that further study is necessary to quantify” the need for extension of the fiduciary standard, “the Coalition certainly would support that effort—and urge them to move forward expeditiously.” But, Mohrman-Gillis added, this “has already been studied extensively” by a number of different parties.
So what further does the Coalition plan to do other than urging the SEC to move forward? “We are having conversations with the SEC and members of Congress urging that the SEC move forward. We are willing to support any additional research the SEC may deem necessary” to expedite extending the fiduciary standard.
On the SEC Funding issue, Hradsky noted that the Coalition’s letter was sent to “open up the door” and that the Coalition is “reaching out to individual members of Congress,” to discuss the SEC’s funding.”
“While the efforts to manage debt and get the [nation’s] budget under control arenecessary, what happens is that that Congress will “cut regulatory budgets,” Mohrman-Gillis asserts, “and that effort is completely misplaced.” We need appropriate regulation “of capital markets to help regain the confidence of regular investors and help the economic posture of the country.”
Regarding the SEC’s “Study on Enhancing Investment Advisor Examinations,” and a potential self-regulatory organization (SRO), Mohrman-Gillis says that the study offered “three options—we looked at each of those options…and are on the record that the best and most effective is if the SEC retains authority,” to oversee investment advisors.
In the subject of SROs, what does the Coalition think of proposal by Mercer Bullard, associate professor of law at the University of Mississippi School of Law, founder of Fund Democracy and senior advisor at PlanCorp, for a program that would provide a brand new (SRO) for registered investment advisors (RIAs)? This is an alternative to one of the SEC’s three options—that FINRA, the broker-dealer SRO, also take on oversight of RIAs. See AdvisorOne’s “FINRA Alternative, New SRO With ‘Bona Fide’ Fiduciary Standard for RIAs.” That’s “an interesting idea and conversation starter, that deserves consideration and exploration,” says Mohrman-Gillis.