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 debate in Washington, D.C. over implementation of the Dodd-Frank Act has taken a bizarre new twist recently. First, last month two law students at the University of Mississippi affiliated with Mercer Bullard announced that they had formed an SRO for RIAs, aptly named the Self-Regulatory Organization for Independent Investment Advisors. Then, Monday, The Committee for the Fiduciary Standard issued a release in support of SROIIA as the SRO for RIAs, but only if the SEC doesn’t continue in its role as regulator of investment advisors, with additional funding from Congress.
The impetus for both these moves seems to be a prevailing sense in Washington that a new SRO for RIAs is in the cards, now that the Republican controlled House appears disinclined to increase funding for the SEC. The front-runner for that job is, of course, FINRA, which with the securities industry support has been angling to absorb RIA regulation since it realized over 15 years ago that it couldn’t stomp out the evolution of independent, fee-only fiduciary advice.
Although I firmly believe that independent advice is the future, it’s a disappointing commentary that after more than 40 years, the independent advisory world is still so fledgling and disorganized that its best hope of preventing a FINRA takeover is a couple of ‘Ole Miss students. What do you think the chances are that when it comes time to designate an RIA SRO, Congress and the SEC will side with the kids in Oxford rather than FINRA? To my mind, slim would be wildly optimistic.
The blame for this sorry state of affairs can only fall on independent advisors themselves, who have just plain failed to get their act together. Probably the most influential advisor group, the Investment Adviser Association (IAA) seems to have too broad a constituency to truly represent independent retail advisors. The largest independent group, the Coalition for Financial Planning (comprising the CFP Board, the FPA and NAPFA) managed to marginalize itself right out of the reregulation debate in the first few months by trying and failing to turn the conversation toward “financial planning.”
And the organization of independent B/Ds—Dale Brown’s Financial Services Institute (FSI)—has proved itself to be more about being B/Ds and less about being independent (which is why the FPA kindly asked them to leave in the first place). In fact, the leader on the advisor side of the regulation battle has turned out to be the grass-roots Committee for the Fiduciary Standard, a small band of stalwart advisors who realized someone needed to try to fill this void.
That leaves, well, nobody to offer a viable alternative to FINRA assuming regulation of RIAs. Or even to challenge SIFMA’s clever misdirection of the debate over a fiduciary standard for brokers into the current debate over regulating RIAs. At this point, the only hope of avoiding a FINRA takeover appears to a banded together independent advisory industry convincing the SEC to let them truly “self” regulate. The Ole Miss kids are probably a better bet.