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.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
Phyllis Borzi, head of the Department of Labor’s Employee Benefits Security Administration (EBSA), told AdvisorOne on Monday that the department's reproposed rule on fiduciary would be applied to individual retirement accounts. “We believe it’s a critical part,” of the rule, Borzi said.
For months, members of Congress, industry officials and the public urged the DOL to repropose its fiduciary rule amending the definition of fiduciary under the Employee Retirement Income Security Act (ERISA). Borzi (left) conceded on Sept. 19, announcing that EBSA would repropose its controversial fiduciary rule, and issue a new proposed rule in early 2012.
EBSA received many complaints about the first proposed rule including IRAs. Brad Campbell, the former head of EBSA who’s now counsel with the law firm Schiff Hardin in Washington, has been urging Borzi to repropose the fiduciary rule for some time. He told AdvisorOne in a previous interview that if the DOL applied its fiduciary rule to IRAs, “broker-dealers who are selling IRAs are going to have to change the way they operate and the way they get paid in connection with those IRAs.” Given the fundamental difference between IRAs and 401(k)s, Campbell continued, there is a valid question in: “Is DOL the right entity to regulate that [IRA] activity, or should this policy really be coming out of Treasury or the SEC?”
Borzi argued at an industry conference earlier this year that there has been a “seismic shift” of boomers’ money from 401(k)s to IRAs, and that “the level of protection in the IRA marketplace for people against financial conflicts of interest is of concern.” This lack of protection, she said, “is one of the main reasons” EBSA has included IRAs in its fiduciary rule proposal.
She went on to say that she’s “mystified” by critics who say if the proposed rule were finalized in its current form brokers would be forced out of the IRA marketplace “because they couldn’t get commissions.”
Since the mid-1980s, she said, the EBSA has had class exemptions for brokers receiving commissions on such “run of the mill” products as securities, annuities and bank products—but not for hedge funds or private equity. “We are carefully examining the exemptions and if we need to tweak them, we’re going to do it,” Borzi said.