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.
- 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.
It’s always fascinating to me to talk with people who know how Washington D.C. works, as opposed to the rest of us who merely have opinions about how the federal government should work. To get the inside scoop on the current outlook for an investment advisor self-regulatory organization under Dodd-Frank, I caught up with Duane Thompson, who is the senior policy analyst at fi360 while he serves as president of Potomac Strategies LLC, a legislative and media relations consulting firm in Washington. I’ve known Duane for longer than either of us care to admit, since even before his tenure as the FPA's chief lobbyist, where his major claim to fame is that he managed the campaign that challenged and prevailed over the SEC and its Merrill Lynch rule in Federal Appellate Court. He’s a straight-shooting, no-nonsense guy who knows what he’s talking about and isn’t afraid to tell you exactly what he thinks.
Having started his Washington career in the Reagan White House press office, he’s been around long enough to know how things get done in our nation’s capital.
This time, I had only one question for Duane: What are the prospects for an advisor SRO? Here’s what he said: “No one’s heard anything definite, yet, but we could see hearings on an SRO this fall. An SRO would require Congressional action, and securities legislation usually starts in the House of Representatives, which is likely in this case, too. The conventional wisdom is that if the House comes out with an SRO bill, it would pass—that it’s a fait accompli. But I don’t think that’s the case. The Senate doesn’t really care what the House does. Back in 1991, the House passed a bill for a similar SRO, but it got bottled up in the Senate. I don’t think an SRO bill today would be priority for the Senate, so it would be question of whether there was a bigger bill it could get attached to. And there are some Senators on the Banking Committee who are proponents of a universal fiduciary standard, who have concerns about how it would be affected by an SRO. So,I’m not sure we’ll get something this year, or even next year. And then there are the 2012 elections, which could change the whole landscape.”
That sounds as if it might be good news for independent advisors. On one hand, the SEC will probably go ahead with a fiduciary standard for brokers, as the requirement for one is pretty clearly spelled out in Dodd-Frank. On the other hand, the fiduciary standard could be decoupled from designating a new SRO—such as FINRA—for RIAs. In fact, it’s probably the most optimistic news I’ve heard in months.
Even better, Thompson believes that should Congress act on an advisor SRO, they will more than likely allow for multiple “self-regulators.” Thompson says that “Legislators don’t like to back just one
So the specter of FINRA taking over the regulation of all RIAs—both independent and B/D-owned—which has been looming pretty large of late may be exorcised by the machinations of Washington. And if the fiduciary playing field were leveled for brokers, too, it would be win/win for financial consumers. Of course, that assumes a genuine fiduciary standard for brokers. But that’s another battle.
Right now, I’d settle for independent advisors remaining independent—of Wall Street and FINRA.