More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- 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.
Even though the Dodd-Frank Act passed into law more than a year ago, we still have little more than a few clues about how it will change the working lives of brokers and advisor. Still, the debate it has initiated within the financial world has given us a much better understanding of the positions that the various interested parties will take in the ongoing conversation.
For instance, the call for a fiduciary standard for brokers is so widespread that virtually everyone—including the brokerage industry—appears to embrace it. Its former opponents have shifted their tactics to making attempts at watering down proposed laws or regulations to the point where they provide little additional consumer protection. What’s more, our timeframe for any changes has shifted as well: With both the SEC’s funding and Congress’s interest in any financial reforms waning, changes to the advisory world will more likely happen later rather than sooner.
It was in the light of both of these realizations that Knut Rostad announced August 22 that he had resigned from the Committee for the Fiduciary Standard, which he had founded, to launch the newly formed Institute for the Fiduciary Standard. “The Committee was formed as an informal group of influential industry leaders,” he told me, “to help guide the regulations resulting from Dodd-Frank. But in an extended debate, some of us felt that a more formal approach would be more effective. While we’ve made progress advancing understanding of the fiduciary standard and its practical importance, there’s much left to do. We are in the midst of rulemaking in DOL and the SEC; misunderstandings abound about what fiduciary means. The Institute provides a permanent platform to build a full program of advocacy and education on this important public issue.”
Rostad is in august company, with the other Institute founders: James Patrick and Marion Asnes of Envestnet; Maria Elena Lagomasino and Michael Zeuner of GenSpring Fanily Offices; Philip Chao of Chao & Co.; and Kathleen McBride, formerly editor-in-chief of Wealth Manager and now with the Institute for Private Investors. Rostad also announced that Roger Ibbotson has agreed to serve on the Institute’s board of advisors.
According to Rostad, the Institute’s mission will be to provide a more well-reasoned (and in my view,
In fact, the Institute’s first event will be a panel discussion on the differences between how the SEC and the DOL handle disclosure and its implications for investor protection on Friday, September 9 in Washington, D.C. In the future, the Institute will focus on research and public debate about the differences between the fiduciary standard and the brokerage industry’s suitability standard. “The battle plan of the securities industry is to minimize the differences between the two standards,” said Rostad. “We want to show the contrary reality: that stark differences exist in reality and in law. If they didn’t exist in law, we wouldn’t be talking about this.”
The creation of the Institute is the next necessary step to change the conversation about a universal fiduciary standard. The Committee proved extremely influential and received an amazing reception in the corridors of power in Washington. But to go to the next level, and challenge the financial industry’s conventional wisdom about a fiduciary standard—the costs involved, the effects it will have, how it should be regulated, business neutrality and, yes, how the lack of a fiduciary standard should be disclosed—requires a more formal, more serious and more focused effort. Hopefully, the Institute will be the catalyst for clearer, consumer-oriented thinking about the fiduciary issue.