More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Securities and Exchange Commission (SEC) Chairman Mary Schapiro on Thursday warned lawmakers on the first anniversary of the Dodd-Frank Act that the agency needs “significant additional resources” in order to proceed with the agency’s responsibilities under the law.
The SEC has proceeded with the “first stages” of implementing Dodd-Frank without the necessary additional funding, Schapiro said, because implementation over the past year has “largely involved performing studies, analysis and the writing of rules.” These tasks, she continued, “have taken staff time from other responsibilities, and have been done almost entirely with existing staff and without sufficient investments in areas such as information technology.”
However, Schapiro told members of the Senate Banking Committee that the new responsibilities assigned to the agency under Dodd-Frank “are so significant that they cannot be achieved solely by wringing efficiencies out of the existing budget without also severely hampering our ability to meet our existing responsibilities.”
Schapiro went on to explain that the budget justification the SEC submitted in February as part of President Barack Obama's FY 2012 budget request estimates that, over time, “full implementation of the Dodd-Frank Act will require a total of approximately 770 new staff,” of which many will need to be expert in derivatives, hedge funds, data analytics, credit ratings. The SEC “also will need to invest in technology to facilitate the registration of additional entities and capture and analyze data on these new markets.”
One of her biggest worries, Schapiro said, is for the agency to lack the updated technology to detect another “flash crash” that occurred on May 6.
Because Dodd-Frank requires the SEC to collect transaction fees to offset the annual appropriation to the commission, Schapiro said, “regardless of the amount appropriated to the SEC, the appropriation will be fully offset by the fees that we collect and will have no impact on the nation’s budget deficits.”
As it stands now, the SEC received a budget boost to $1.18 billion for this year and the agency’s budget will remain flat at that level in 2012.
Schapiro told lawmakers that if the SEC fails to receive additional funding, “many of the issues highlighted by the financial crisis and which the Dodd-Frank Act seeks to fix will not be adequately addressed, as the SEC will not be able to build out the technology and hire industry expertise and other staff desperately needed to oversee and police these new areas of responsibility.”