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.
- 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.
Washington insiders are betting that the House Financial Services Committee will introduce legislation calling for a self-regulatory organization (SRO) for advisors soon after the committee's subcommittee on capital markets holds a Sept. 13 hearing on the issue.
"It's very likely we can expect SRO legislation to be introduced shortly after [the hearing] on the House side," says Duane Thompson, senior policy analyst for fi360. "If an SRO bill is introduced in connection with the hearing," Thompson says, "the first question is whether it will be limited to broker-dealers/advisors, or include independent advisors as well." The second, more important, question, he continues, "is not whether it will be passed by the House, but whether the Senate will take it up this year."
The Sept. 13 hearing will also examine the regulation of investment advisors and broker-dealers, while the full committee plans to hold a hearing on Sept. 15 on the need to reform the Securities and Exchange Commission (SEC).
The capital markets subcommittee, chaired by Rep. Scott Garrett, R-N.J., (left) will examine the studies mandated by Dodd-Frank on the effectiveness of standards of care applicable to broker-dealers and investment advisors, and on the need for enhanced examination and enforcement resources for advisors—i.e. the need for a self-regulatory organization (SRO) for advisors.
Garrett has also introduced the SEC Regulatory Accountability Act (H.R. 2308), which would require the Securities and Exchange Commission to perform enhanced cost/benefit analyses on its rules.
The full committee’s chairman, Rep. Spencer Bachus, R-Ala., is also pushing legislation called the SEC Modernization Act, which would significantly alter the SEC’s structure. The full committee postponed a hearing it was to hold in early August regarding the SEC called “Fixing the Watchdog.” That hearing has now been rescheduled to Sept. 15, and will focus on the structure and operations of the SEC.
It remains to be seen if lawmakers will delve into the fiduciary duty rule being crafted by the SEC at the hearings. But Bachus told SEC Chairman Mary Schapiro in an early August letter that the agency should hold off on writing a rule to put brokers under a fiduciary mandate, as he supports the views aired by the SEC's two Republican commissioners, Troy Paredes and former commissioner Kathleen Casey, that the commission has failed to “demonstrate that investors are being harmed by the current” fiduciary standard and that “harmonization” of advisor and broker rules would “enhance” investor protection.
The SEC should not be pressing ahead on the fiduciary issue, Bachus said, because it has yet to provide Congress with “empirical data and economic analysis to justify” fiduciary or harmonization rules. Any action taken on these two fronts, Bachus said, “is premature” until the SEC answers these questions.