More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Code of Ethics Rule The Code of Ethics Rule, found in Rule 204A-1, uses severe consequences for violation to help ensure investment advisors will do the right thing.
The California Assembly Committee on Labor and Employment passed a bill on Wednesday that would require broker-dealers to manage and maintain forms for independent- contractor financial advisors. The bill is set to go before the Assembly Judiciary Committee next week and then could be considered by the Assembly Appropriations Committee on or after Aug. 15, before being enacted.
Earlier this week, the Financial Services Institute (FSI) pushed 2,000 advisors and 18 broker-dealers in California to lobby against Senate Bill 459, which passed that part of the legislative branch on June 2.
“Although the outcome was expected, the good lengthy discussion that took place [yesterday] is an indication that the bill is being closely scrutinized, which should only help to make the case for exemption for financial advisors further down the line,” said Matt Schwartz (left), government-affairs counsel for FSI, an Atlanta-based lobbying group, in a statement.
According to FSI,four Democrats voted for the bill, two Republicans voted against it, and one Democrat on the committee was absent.
“FSI will be engaged in agrassroots effort that is coordinated with the Sacramento legislature advocacy effort” over and after the summer, Schwartz explained.
SB 459 “would create additional unnecessary costs for the broker-dealer that would be passed on to the financial advisor and/or investors,” according to FSI. The measure would also increase administrative costs for the state to the tune of about $250,000, the group says.
Under the new rules, broker-dealers would be required to retain independent-contractor forms, which would be reviewed by the state, for two years.
The state of California is hoping to raise funds and cope with its budget deficit by looking into the issue of whether or not some workers are being misclassified as independent contractors, according to FSI.
“Independent financial advisors are being properly classified,” Schwartz explained. “Their funds flow through the broker-dealer and are reported on 1099 forms. We are inadvertently swept up into this, which is not the aim of the bill.”