More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- 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.
Industry officials are somewhat perplexed as to why Rep. Barney Frank, D-Mass., ranking member of the House Financial Services Committee, sent a May 31 letter to Securities and Exchange Commission Chairman Mary Schapiro, urging the agency not to put broker-dealers under the exact same fiduciary standard that advisors are subject to under the Investment Advisers Act of 1940.
In his letter to Schapiro, Frank (left) said that while Section 913 of Dodd-Frank gives the SEC the authority to establish a new fiduciary standard of care for broker-dealers, “the requirement that the new standard be ‘no less stringent’ …was not intended to encourage the SEC to impose the Investment Advisers Act standard on broker-dealers, but to ensure the new standard would not be a ‘watered down’ version of the investment advisors’ fiduciary standard.” Frank went on to say that if Congress intended the SEC “to simply copy” the Investment Adviser Act standard for brokers, it would have repealed the broker-dealer exemption.
The new fiduciary standard contemplated by Congress, Frank wrote, “is intended to recognize and appropriately adapt to differences between broker-dealers and registered investment advisors.”
Barbara Roper, director of investor protection for the Consumer Federation of America (CFA), said in an email to AdvisorOne that she’s “not sure what Congressman Frank was trying to achieve” with his letter to Schapiro.
The SEC’s study under Section 913 of Dodd-Frank, Roper said in her email, “made absolutely clear that the agency has every intention of pursuing an
approach that retains the ability of brokers to offer transaction-based advice compensated through commissions and to sell both proprietary products and from a limited menu of products."
“Moreover, [the SEC] has delayed dealing with principal trading restrictions so that they can be addressed as part of the larger fiduciary rule in a way that preserves brokers’ ability to conduct such trades. There is absolutely no reason to believe the SEC is going to diverge from that path, something I’m sure Congressman Frank is aware of.”
Lobbying efforts have no doubt heated up as Schapiro made clear recently that the agency would turn its attention to crafting a fiduciary duty for brokers after July 21, the date marking the one-year anniversary of Dodd-Frank.