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.
- 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.
In an announcement akin to “the check is in the mail,” the SEC has said that final rules implementing the Dodd-Frank Wall Street Reform Act (“Dodd-Frank”) mandated “switch” will be adopted by July 21. But even if the SEC meets that deadline, the agency indicated that it could be well into 2012 before firms are forced to comply with the new rules. Is disarray at the SEC prompting the delay?
Dodd-Frank changed the assets under management (AUM) threshold for registration with the SEC. Once the new rules are implemented, advisors with between $25 and $100 million in AUM will be required to withdraw their registration from the SEC and register with state regulators. Also, where advisors to private funds were previously exempted from registration with the SEC, most of those advisors will now be required to register.
The drop-dead date for the old advisor registration rules was supposed to be July 21, 2011, which most commentators assumed to mean that the new registration thresholds would kick in on that date. But apparently the SEC is unready to implement the rules, which will give firms at least another six months to comply with the new registration requirements.
Although the delay will have compliance personnel at some firms affected by the change breathing a sigh of relief, it’s a bad sign for the SEC. The problem is that the announcement is confirmation that the underfunded SEC is struggling to carry the burden heaped on it by Dodd-Frank. Already understaffed and underfunded, the SEC has become a favored target of budget slashing congressmen—especially on the Republican side of the aisle.
Although the FY 2011 budget compromise reached between the President and Congressional leaders in April included a funding increase for the SEC, Rep. Paul Ryan budget’s, which would slash the SEC’s budget to 2008 levels, was approved by the House on April 15. And news sources are reporting that even some Senate Democrats think “it might make sense to use [the Ryan plan] as a framework for a budget resolution.” If a spending plan like the Ryan proposal passes Congress, you can bet that the SEC will be forced to further scale back its efforts to implement Dodd-Frank-mandated regulatory changes like the switch.
Information about the updated timetable for the switch was released in an April 8th letter from Robert Plaze, associate director of the SEC’s Division of Investment Management, to David Massey, president of the North American Securities
Administrators Association (NASAA). In the letter, Plaze said that the 2012 ETA for implementing the switch and private advisor registration requirement is necessary to give the SEC time to reprogram its Investment Adviser Registration Depository system (lARD) to accommodate the new rules.
Firms frantic over the switch—which was originally supposed to happen on July 21, 2011—now have more time to prepare for the transition to state regulation. But this news out of the SEC is also a sign that the SEC’s fiscal stability may be more tenuous than ever. And if a budget like the Ryan proposal is passed, you can be sure that chaos at the SEC will overrun even the best intentions to implement the Congressional mandate.
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See also The Law Professor's blog at AdvisorFYI.