More On Legal & Compliancefrom The Advisor's Professional Library
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- 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.
As the advisory industry has watched Dodd-Frank’s implementation play out over the past year, the largest association of financial planners and the industry’s top certification body are warning advisors to continue to pay close attention to the law’s progress, as the provisions that most affect them will begin taking shape during the second year of the reform law’s life.
“The issues [in Dodd-Frank] that impact [advisors] the most are still in play and yet to be determined,” says Dan Barry, managing director of government relations and public policy for the Financial Planning Association (FPA). Many of the provisions that the SEC and other regulators have been required to tackle in the first year of Dodd-Frank—signed into law on July 21, 2010—have tended to deal with “bigger structural issues like derivatives” and setting up the Consumer Financial Protection Bureau (CFPB), Barry says.
For advisors, the real issues are how the SEC creates a fiduciary duty for brokers, harmonization of advisor and broker rules, as well as how the SEC, and, more importantly, Congress itself moves forward on the specifics of advisor oversight—which could come in the form of a self-regulatory organization (SRO) for advisors, Barry (left) says.
Marilyn Mohrman-Gillis, managing director of public policy for the Certified Financial Planner Board of Standards (CFP Board), adds that the House Financial Services Committee’s Subcommittee on Capital Markets plans to hold a hearing in September on Sections 913 (fiduciary duty) and 914 (advisor oversight) of Dodd-Frank.
Barry and Mohrman-Gillis spoke with AdvisorOne Washington Bureau Chief Melanie Waddell the day before the anniversary, discussing Dodd-Frank’s progress so far, as well as their concerns as implementation of the controversial legislation moves forward.
AdvisorOne: How do you feel about Dodd-Frank’s implementation thus far?
Mohrman-Gillis: [The CFP Board] applauds the SEC for the work it has done so far under Dodd-Frank. The SEC has done a remarkable job in this past year. [SEC Chairman Mary] Schapiro has committed publicly to moving forward with establishing a rulemaking on a fiduciary duty standard of care [for brokers] right after the Dodd-Frank anniversary, and we applaud her for that. We are doing our part to encourage her to make that a priority and not let it get sidetracked or delayed.
AdvisorOne: Are you hearing that the fiduciary duty rulemaking will continue to be a priority at the SEC?
Mohrman-Gillis: We have been hearing that [a fiduciary rulemaking] will proceed forward. There has been some pushback—[the] two SEC Commissioners asking for additional study of the cost/benefit analysis [of a fiduciary rule]; we know SEC is pursuing that.
One of our concerns is that there are some general pushbacks coming from the Hill on moving forward with some of the investor protection components of Dodd-Frank. We will continue to advocate that while you can do some initial cost/benefit analysis on [the fiduciary duty] issue, we think that this issue has been around for a long time and has been studied extensively; there’s no question that consumers need the fiduciary standard of care and that the concept that you need to study it more should not be used as an excuse to delay or derail it.
Barry (left): It’s a very fluid situation. We have to keep our eye on the ball and make sure things like fiduciary move forward.
AdvisorOne: What are some other concerns you have about Dodd-Frank moving forward?
Barry: How a fiduciary [rule] gets done. A lot of the concern isn’t so much what the SEC has done yet, it’s what the agency will do—or won’t do—going forward on fiduciary, harmonization and advisor oversight. A lot of it is up in the air right now.
With fiduciary in particular we will have to see what some of the specifics are [from] the SEC—whatever rules [the SEC] comes up with will probably be heavily focused on disclosure. Disclosure is all well and good but you have to make sure [the Commission] doesn’t lose sight of what fiduciary is all about, which is acting in the best interest of the client. Disclosure, in and of itself, doesn’t meet that standard of acting in the best interest of the client, so the two have to go hand in hand.
Mohrman-Gillis: In terms of biggest concerns, I would add to the list of the overarching concerns the need for the SEC to be adequately funded to implement Dodd-Frank. For 2011, there ended up being a slight increase in appropriations [for the SEC] to $1.18 billion; in 2012 the SEC is looking at level funding, but that is way below the authorized amount in Dodd-Frank. Quite frankly, the SEC is being asked to take on a lot of increased responsibility for investor oversight and protection types of issues that they simply can’t do with level funding.
AdvisorOne: Do you see harmonization of advisor and broker rules coming to fruition? An SEC official said recently that a fiduciary duty rule would likely come out of the agency this year, but not one on harmonization.
Mohrman-Gillis: We believe that the harmonization issue should be a second tier set of issues—put a fiduciary standard in place and then you can address some of those harmonization issues. Another point related to harmonization is if you want to seek to harmonize those rules that relate to the delivery of investment advice of securities to retail customers, there are a lot of things that broker-dealers and a lot of rules that they have in place that don’t relate to that. You’re not talking about a wholesale, 'whatever rules that apply to broker-dealers should apply to advisors' and vice versa.
It’s more of a tailored and careful look at the rules to see what might need to be harmonized so that when [advisors and brokers are] doing the same thing, they are subject to the same rules.
Barry: Harmonization means getting like conduct regulated in a like manner, roughly put. So we’ll need to look at each specific proposal on what is being harmonized and why it’s being harmonized and is it sensible to harmonize a particular rule or set of rules. It’s going to be a judgment call as those discussions move forward.
AdvisorOne: Are lawmakers leaning toward an SRO for advisors?
Barry: I haven’t sensed a groundswell up on Capitol Hill. I don’t think they’ve focused on it because they’ve got a lot of other issues on their plate. We haven’t gotten a strong indication that there’s been a lot of deliberation on this issue. I think it has to play itself out a bit more, probably [be] discussed in hearings. I don’t think there’s a huge momentum to do anything at this time.
Mohrman-Gillis: I agree with Dan completely. We’ve been in a number of offices on the Hill and I think we’re still at the stage of basic education. I’m not getting a sense that offices have formed an opinion [on the SRO issue] one way or another.
For more on the fiduciary issue and the Dodd-Frank first anniversary, see:
And additional AdvisorOne reporting on the Dodd-Frank anniversary.