More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
The deal reached at literally the final hour last Friday night between Congressional leaders and the White House is good news.
I’m relieved that a government shutdown was averted last week. It may be fashionable to make fun of Washington, DC and joke about whether anyone would really notice a difference if federal workers stayed home. But the ability to strike a compromise is important to demonstrate that our elected leaders are capable of governing despite immense policy and philosophical differences. The deal, which the Congress should finalize with votes today or tomorrow (when the latest continuing resolution, or CR, expires), also ensures that most government services will continue for the next few months, thus avoiding the potential of an unwelcome and unnecessary financial jolt that an extended shutdown could produce. Perhaps most important, the budget deal may form the basis for resolving the critical debate over extending the debt ceiling. Congress must act by mid-May to extend the ceiling or risk putting the U.S. economy and reputation at great risk. Investment advisors should be contacting their elected representatives now to help them understand that playing games with the debt ceiling would be ill-advised for investors, for the country, and for the world.
What does the new budget deal mean for the SEC? The bottom line is that the SEC did quite well. For 2011, the SEC received an increase of $74 million above its 2010 funding level. The $1.185 billion allocated to the Commission for 2011 is less than the $1.235 billion initially requested by the White House. But compared to other agencies that will experience substantial cuts, the SEC’s funding level is ample.
While this is relatively good news for the SEC, it’s no cause for popping the champagne corks. For one thing, the budget deal applies to federal fiscal year 2011. This means the funding only runs through the end of September – less than six months from now. Moreover, while the nominal increase is better than a dramatic reduction, it does not translate into enough funding that would enable the agency to make the investments that are most needed by the agency – hiring personnel and updating technology.
The SEC still has piles of work to do to meet the mandates of the Dodd-Frank law. Chairman Mary Schapiro has emphasized that the task of implementing the scores of rules required by Dodd-Frank will be the most expensive part of the legislation. Some requirements of Dodd-Frank already are being delayed. Last week, the SEC staff wrote a letter to state regulators informing them that certain Dodd-Frank provisions—requiring private fund advisers to register as investment advisors and requiring advisory firms with less than $100 million AUM to register with the states—will be delayed by several months. This may be only one of several delays that will play out in the months ahead.
Now that the 2011 budget deal is complete, Congress has a very short period of time to approve the 2012 budget. To be sure, this may prove to be even more contentious than what we’ve just witnessed. The already heated rhetoric will likely break the thermometer as the 2012 presidential election season warms up.
Whatever the outcome, you can expect more scrutiny of the budget and the agencies that administer federal funds. For example, a provision was tucked away in the 2011 budget deal that requires the General Accountability Office to conduct a study of the budget to determine “the impact of regulation on the financial marketplace,” the “costs of compliance with rules,” and whether federal agencies “are applying sound cost-benefit analysis in promulgating rules.”
I’m glad that our leaders reached a compromise on the 2011 budget. Anyone care to place any bets on the outcome of the 2012 debate?
As always, I welcome your thoughts and feedback on these important matters.