More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
I don’t know about you, but I’ve come to realize that there is a small—and growing—number of lame-brained catch-phrases that should come with the warning; “Nothing rational will be contained in the following argument.”
At the top of my list is “in the richest country in the world…,” which invariably is used to justify some ridiculously expensive program, on the apparent assumption that America’s coffers are bottomless. Then there’s “obscene wealth,” which almost always precedes a scheme to confiscate a portion of someone else’s hard-earned money. Then there is the related phrase “windfall profits,” which belies the targeting of legal sales to freely acting consumers.
Finally, we have the now cliché’ “hard-working Americans,” which more often than not is an attempt to provide a populist, Robin-Hoodesque sheen to a notion that is neither.
Which brings us to FSI CEO Dale Brown’s statements in opposition to the DOL’s expansion of its fiduciary standard (see my last blog, A Tale of Two Regulators). “This proposal will have significant unintended consequences by limiting access to retirement advice and service for the 19 million IRA account holders and participants in the more than 600,000 Covered Plans who are planning for their retirement,” said Mr. Brown in a July 27 FSI statement. “The simple fact is,” the statement continues, “if this rule were to become reality, advisors would lose their ability to be compensated through commissions on advice given to investors with IRAs and would no longer be able to help many hard-working Americans plan for retirement. When it comes to providing affordable, unbiased, independent financial advice to millions of Main Street Americans, you cannot over study this matter.”
My, my, it sure sounds as if whatever the DOL is proposing, it sure must be bad. And sure enough, those wacky folks over at the Department of Labor have cooked up the cockamamie notion that investors who put money into Individual Retirement Accounts (the operative word here being “retirement”) should be afforded the same fiduciary protections as investors in all other retirement and pension plans. I know, it sounds crazy on the face of it, but upon reflection, maybe the DOL has a point here, that’s reflected even in Mr. Brown’s objections.
The courts have ruled over and over again that, under the Investment Advisers Act of 1940, when one provides “investment advice” one is subject to a fiduciary standard. All the DOL is doing is closing a loophole in its
This very common securities and insurance industry rationalization flies in the face of both common sense and the financial industry’s experience over the past 20 years. As the securities industry has been dragged—kicking and screaming—to convert its retail business from commissions to fees, its revenues haven’t gone down, they’ve gone up, way up. What’s more, there’s absolutely no evidence to suggest that a fiduciary standard is more costly. Quite the contrary: It is fiduciary independent advisors who are fearful of being regulated out of business if subjected to FINRA’s draconian rules-based approach.
In fact, it is a fiduciary standard’s tendency to level the economic playing field for small, independent advisors that threatens the FSI and SIFMA and their constituencies of large B-Ds. Which is why they’ll use any rhetorical trick, no matter how lame, to defeat or delay expanding such a standard on any front. So, yes, Mr. Brown, while the FSI is calling for the DOL’s rulemaking process to be suspended until a comprehensive impact assessment had been completed, there is such a thing as “too much study,” when it’s clearly a transparent attempt to delay the protections that hard-working retirees want and need.