More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
The cause for a universal fiduciary standard for all retail financial advisors received a couple of much needed booster shots in the arm during the past week or so—and with it, possibly a little brightening of the future of independent advice.
First, last Thursday, the Financial Planning Coalition (comprising the CFP Board, the FPA, and NAPFA), sent a petition to the SEC, urging the Commission to “establish a strong and uniform fiduciary standard of conduct for broker-dealers and investment advisers that is no less stringent than that under the Investment Advisers Act of 1940.” The petition went on to point out that: “Most consumers assume their financial services providers are already required to provide advice that is in their best interest. Unfortunately, this is not the case.”
So far, so good. But also unfortunately, the Coalition then went on to point out that the petition was signed by “thousands of financial planners across the nation,” or to be precise, some 5,200 financial planners. However, when your organization represents 75,000 CFPs, a petition signed by 7% of your constituents kind of makes it look like a lot more planners are against it than for it. Note to FP Coalition: In future communications to regulators, it’s probably better to simply state that you represent the total membership of the FPA, NAPFA, and the CFPs, minus any overlap.
Perhaps in response to this groundswell of support from the financial planning community (hey, it’s possible), the SEC’s chief counsel in the Office of Investment Management made a surprising statement yesterday. Speaking at a regulatory conference in Washington (reported by AdvisorOne Washington bureau chief Melanie Waddell), Douglas Scheidt said that “while he believed the securities regulator would issue a rule putting brokers under a fiduciary mandate this year, the agency would hold off on issuing one on the overall harmonization of advisor and broker rules.”
To my knowledge, this is the first time the SEC has signaled an intention to decouple the thorny issue of harmonized rules from the relatively straightforward task of imposing a fiduciary standard on brokers. It would be even easier should the Commission adopt the FP Coalition’s suggestion that it simply apply the ‘40 Act standard to brokers. Of course, life is rarely that simple.
Still, the heretofore linkage of the fiduciary standard with harmonized rules (which was started by Treasury’s recommendations two years ago), was pounced upon by FINRA as a two-pronged regulatory nightmare, far too complex to be handled by any other organization. By hinting at the possibility of separating these issues, this may open the door for more simple solutions, which might include a SRO for RIAs, and could mean the difference between survival or not for independent advice.
Which opens the door perhaps a crack wider for Mercer Bullard’s Self Regulatory Organization for Independent Investment Advisors. Based on what Bullard told me last month, and which I wrote about in my last blog, the timing for that organization is to wait until the SEC formally reveals its new regulations for investment advisors and brokers, under Dodd-Frank. Then, the Business Law Society will file a petition for approval to be an RIA SRO. Advisors who are interested, can follow SROIIA’s progress at the Business Law Society’s website: funddemocracy.com.