More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- 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.
Last week, I was at the fi360 conference in San Antonio where, among other things, Knut Rostad and the Committee for the Fiduciary Standard released their response to the House Republicans’ letter to the SEC on the fiduciary standard. You might remember that last month, the newly installed chairman of the House Subcommittee on Capital Markets, Scott Garrett (D-N.J.), asked the SEC to slow down a bit on implementing a fiduciary standard for brokers, largely on the grounds that all of the financial implications of such a standard hadn’t been fully explored. The Committee, which supports such a standard, has responded with possibly the most cogent communication in the entire financial reregulation debate.
The letter (see a copy here) strikes just the right tone, by applauding the Subcommittee’s intent to examine “…the extensive body of knowledge of research, analysis, and commentary that exists today on the obligations of broker-dealers and investment advisers.” It then goes on to point out the great extent to which that research and its subsequent commentary agree on the key points surrounding the current fiduciary standard debate, such as the need for greater investor protections, the belief of the vast majority of investors that brokers currently have a fiduciary duty to their clients and the desire of investors for their financial advisors to have such a duty.
After establishing this common ground upon which current debate should be based, Rostad et al. go on to address the Republican’s primary concerns about the potential costs of a broker fiduciary standard, and the subsequent impact that those costs might have on investor choice of advisors, by pointing out that no commenter to date as cited or quantified what those cost might be. The Fiduciary Committee’s conclusion: “…based on this record provided by industry commenters, it is not at all clear there are material incremental costs directly associated to the fiduciary standard.”
Then, Rostad didn’t stop at simply pointing out the House Republicans are holding up the prudent implementation of the already passed Dodd-Frank Act based on vague and unsubstantiated objections. His letter goes on to hammer home the point that should have ended this whole, sorry discussion long ago: “A cornerstone of the SEC’s mission is investor protection… …At what point and on what basis does the Commission determine that adhering to the duties of loyalty and care is “too costly” for the industry and, in so doing, effectively, decree these fiduciary duties null and void?”
It’s true that the SEC should certainly be aware of the impact of any new regulations it introduces, including the potential costs. But the notion, put forward by the securities industry, that the potential costs of proposed investor protections (even if they were more than just vague fears) should somehow supersede the SEC’s mission to protect the public is beyond ridiculous: It would empower the SEC to void every financial law and regulation on the books. I’d like to believe that even the House Republicans will have to acknowledge the folly in this pseudo-reasoning.