More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
This is an extended version of the profile that appeared in the May issue of Investment Advisor, part of AdvisorOne's Special Report profiling this year's members of the IA 25, the most influential people in and around the advisor universe. See the complete list and Special Report schedule for extended profiles of all the 2011 members of the IA 25.
As head of the Department of Labor's Employee Benefits Security Administration, Phyllis Borzi's influence on the industry is undeniable. Under her leadership, the department has proposed rules to strengthen target-date fund disclosures, and improved fee transparency in 401(k) plans.
But Borzi is a major player in an increasingly heated debate. She and the Labor Department have been instrumental in shaping advisors' future role as fiduciaries.
The assistant secretary announced in March that the department expects to release a final rule on the definition of fiduciary under ERISA by the end of the year, saying at a public hearing that it's "vitally important" to "get it right" when defining terms like fiduciary. Borzi told Investment Advisor that the DOL is on target to meet that year-end goal, but emphasized her desire to make sure the final ruling is sound.
"We want to make sure we take the time to carefully craft the final regulation the right way and will take the time we need in order to do that," she told Investment Advisor.
Borzi has also insisted that while the DOL won't bow down to the Securities and Exchange Commission or the Commodity Futures Trading Commission regarding rulings on fiduciary, there is a concerted effort to "harmonize" standards.
"The aim of all our coordination is to ensure that the agencies' regulations are harmonized so that covered parties can sensibly comply with the laws governing their conduct in a way that protects their customers without undue costs," she said, adding that the agencies "provide technical assistance to each other in understanding the laws and financial practices at issue in our respective projects." She acknowledged a long history of coordination with the SEC, and pledged to continue to work with that agency.
That cooperation doesn't end at the SEC and the CFTC. The proposed rule was published on Oct. 22, 2010, and the DOL extended in March the public comment period for two weeks to give "more opportunity for the public to provide input." A public hearing was held on March 1 and March 2, the public record of which "remains open until April 12 so that interested persons have sufficient time to share their views."
One element of the rule has emerged as a possible solution to the fiduciary debate: the sellers exemption. The exemption would allow advisors who disclose to clients that they are not fiduciaries and are compensated by the plan provider, and who are clear about the fees they charge to satisfy their disclosure requirements.
This sellers, or "counterparty," exemption, according to Borzi, "reflects a recognition that plans often engage in arm's-length transactions" where clients understand that their advisor is not a fiduciary, but a "commercial actor on the opposite side of a transaction in which it has opposing interests to the plan."
"The proposed regulation reflects our view that such counterparties should not be treated as fiduciaries," she concluded.
Read more about the rest of the IA 25.
Don't see someone on this year's IA 25 that you think belongs there? Submit their name and your justification for why they should be considered among the most influential people in and around the advisor universe in the Comments field below. We promise to consider reader nominations, but please, no ad hominem attacks on those who were named in this or past years.--Ed.