More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
“There’s a lot of focus, and rightly so,” on the current debate over whether an authentic fiduciary issue will be extended to all advice-givers by the SEC, says Skip Schweiss (left), president of TD Ameritrade Trust Co. But there’s another fiduciary-related issue proceeding in Washington that might provide advisors with a significant business opportunity: that taking place at the Department of Labor.
Schweiss spends a fair amount of time thinking about developments in Washington when he wears one of his other hats at TD Ameritrade—that of managing director of advisor advocacy and industry affairs for TD Ameritrade Institutional, the RIA custodian. TDAI and its president, Tom Bradley, have consistently been staunch advocates of strengthening the fiduciary standard for all advice-givers.
In an interview on April 7, Bradley (left) said, “The RIA community has always been focused on putting the clients first.” But he also notes that “there’s a reason for two models; we should preserve choice.” How to preserve choice, then, while putting clients first? “Separate sales and advice services from each other,” Bradley suggested.
But in an interview on April 12, Schweiss talked about the opportunity for fiduciary advisors in the refined definition of fiduciary by the Dept. of Labor under the Employee Retirement Income Security Act (ERISA). Phyllis Borzi, assistant secretary for DOL’s Employee Benefits Security Administration (EBSA) has promised to issue a final rule on the new definition by year-end.
That decision, he argued, could have “a more immediate impact on advisors than anything Congress and the SEC is doing.” In essence, the DOL’s proposed rule would state that anyone who advises retirement plans on investment products or strategy will be subject to a fiduciary standard. That would include IRAs and 401(k) plans, suspects Schweiss. The rules would also require any plan advisor to base their advice on either a computer model or more customized advice but on which the advisor could only charge a level fee regardless of the amount of assets in the plan or growth of said assets.
“The new DOL regs are playing to advisors’ advantage,” says Schweiss, “ and will tilt the field way back to the benefit of fiduciary advisors.” To take advantage of this “great business opportunity,” says Schweiss, advisors need education on advising plans under ERISA rules. TD’s role, he says is to help provide
that education to advisors and “introduce them to the recordkeeping firms.” TDAI, Schweiss says, serves 100 of those third party record-keepers, or TPAs.
The SRO Surprise?
On another matter of similar import to advisors—the prospects of setting up an SRO for RIAs under Section 914 of the Dodd Frank Act—Schweiss suggests that it’s important to ensure we “get the facts on the table” when it comes to the debate. To begin, he points out that the Congress “loves small businesses,” so Schweiss suggests that advisors write to their Congressmen and express their opinion on the SRO and other legislative and regulator matters in Washington that will make a difference for your business.
Second, Schweiss related the findings from polls of two sets of advisors—one formal, one highly informal—that he found interesting. In November 2010, TD Ameritrade Institutional surveyed advisors, asking what their preferences were for either being regulated by the SEC with user fees, or by an SRO—55% said they would prefer user fees; while 45% said they’d prefer an SRO.
The other, informal poll took place at a meeting of top TD-affiliated RIAs this year. For the meeting, TD had invited representatives of both the SEC and FINRA to address the gathering. While the SEC declined—it can be difficult to get SEC officials to travel outside the DC area—a lieutenant of FINRA’s Rick Ketchum (left) did appear. That official presented to the RIAs a vision of how FINRA might operate as an SRO for advisors. He said FINRA would not subject RIAs to the same examination routine as it used for broker-dealers. He said FINRA would ensure that examiners were trained to understand the nuances of an RIA business model. He said FINRA would set up a board separate from its current one for an advisor SRO, and that the board would include practitioners.
After the session, Schweiss reports, the sentiment among advisors in attendance seemed to soften somewhat toward the prospect of FINRA as a possible SRO for RIAs.