More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
In case you’ve missed it, there’s quite row going on over the Department of Labor’s efforts to rewrite its definition of fiduciary advice for advisors to pension plans. Not only have the usual suspects such as SIFMA and FSI come out against it, even the Consumer Federation of America and the American Society for Pension Professionals and Actuaries have expressed reservations. And in a political environment where both side of the aisle in Congress can’t agree on what day it is, there’s even been a bipartisan call for the DOL to go back to the drawing board.
For financial advisors who work with qualified plans, the fate of the DOL’s rule changes has, of course, been on the front burner. But while events in the pension arena don’t affect the majority of advisors, the outcome of the ERISA battle will undoubtedly have implications for the looming debate over advisor reregulation under Dodd-Frank. For one thing, there have been calls from many quarters for coordinating the fiduciary standards under the DOL and the SEC (although, considering the glacial pace of the “underfunded” SEC, this could be as much a delaying tactic as a real concern). And of course, the same old objections by the same cast of characters have been cut and pasted into the DOL debate: the new regulations will increase costs, limit investor choice, reduce access to much needed financial advice, yada, yada, yada.
It’s very possible, though, that the most important takeaway from the current pension advisor debate is the difference between the DOL’s approach and how the SEC has handled its responsibilities to regulate investment advisors, both under Dodd-Frank and historically. If the DOL is successful in fending off its detractors and establishing a more consumer-oriented fiduciary standard, it may well provide a blueprint for successfully establishing an SRO for independent RIAs as an alternative to FINRA.
The Department of Labor’s rationale for rewriting its fiduciary standards was captured by Fi360’s Kristina Fausti, writing in her July 2011 report to
Contrast the DOL’s consumer-oriented approach to improving its rules with the SEC’s behavior over considering the Dodd-Frank-mandated fiduciary standard for brokers, in which “additional costs,” a “level playing field,” and “business model neutrality” have been the primary considerations. We might also compare the DOL’s intended course of action in the face of unprecedented opposition: “The DOL, however,” wrote Fausti, “will likely move forward with its proposal to replace the decades old five-part test in order to give its investigators the tools they need to protect plans and participants.” No foot dragging, no series of study after study, no plausibly ignorable reports by its staff; the DOL simply identified a problem through its investigators last November, and swiftly proceeded to draft a solution. If it’s too consumer oriented for the financial industry, well, that’s not whom the DOL is charged with protecting.
As the independent advisory profession moves toward its own SRO to ensure the consumer-oriented regulation of its fiduciary standard, the DOL appears to be a far better model than either the SEC or FINRA. But perhaps advisors should take one page out of the securities industry’s book, and point out how the FINRA regulation of RIAs will raise costs, limit investor choice, and limit investor access to independent, fiduciary investment advice. After all, large brokerage firms are able to absorb the costs of complying with FINRA’s bureaucratic, rules-based standards thanks to their other (often conflicting) business lines such as principle trading or proprietary products. Independent, fiduciary investment advisors, however, are restricted from such highly profitable side businesses, due to the inherent conflicts with the best interests of the clients. That’s an argument worthy of the DOL.