More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
Some problems are simply too easy to fix. Back-of-the-envelope calculations find means testing and higher retirement ages as a solution to Social Security shortfalls. A haircut in wages and benefits from certain public sector unions that bring them more in line with their private sector counterparts would do wonders for state budgets. Despite numerous studies from multiple agencies on the question of fiduciary responsibility, a concept as simple as a sellers’ exemption could solve the problem rather quickly.
While FINRA and the SEC dither, one bloated government bureaucracy moves ahead with surprising dexterity. The Department of Labor held hearings March 1, on the definition of fiduciary, and the sellers’ exemption was top of mind.
“In the 401(k) space, the DOL absolutely has a role to play in regulation,” Brian Graff, executive director and CEO of The American Society of Pension Professionals and Actuaries (ASPPA), told me a week after his DOL testimony. “If an advisor of record on a plan says, ‘You should offer these 20 mutual fund options in your plan,’ does that constitute advice? Common sense says absolutely. But how does that work from a fiduciary standpoint? Disclosure is the key, through some sort of seller’s exemption.”
The exemption would work in the following way: If the advisor discloses to the client that she is not acting in a fiduciary capacity, that she is being compensated by the plan provider and the advisor is transparent about the amount of the fees she is charging—and the client is fine with all that—then the advisor has satisfied her disclosure requirements.
“We believe very heavily in transparency, and this is an issue of transparency,” Graff added.
Not that it’s a new concept, and other industry leaders (TD Amertitrade’s Tom Bradley comes to mind, for example) have been calling for it without using the actual name. So we largely agree on the problem, and we largely agree on the solution. What, exactly, is the holdup?
While FINRA and SEC officials remind us we’re at the beginning of a very long process, Phyllis Borzi, assistant secretary for the DOL’s Employee Benefits Security Administration, wants to issue a final rule by year’s end. Overly ambitious? Possibly. Refreshing? Absolutely.
Forget simply filling in the gaps between FINRA and SEC oversight. The leadership and sense of urgency Borzi has displayed has me thinking of a third possible SRO alternative.