June 23, 2011

New Rules for California FAs, BDs Clears Hurdle

The Financial Services Institute is lobbying for an exemption for financial advisors from the independent-contractor legislation

More On Legal & Compliance

from The Advisor's Professional Library
  • RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients’ privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
  • Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors.  When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.

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.”

Reprints Discuss this story
This is where the comments go.