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.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Advisors and broker-dealer representatives descended on Capitol Hill on Wednesday to urge about 260 members of Congress to support House Financial Services Committee Chairman Rep. Spencer Bachus’ draft legislation calling for one or more self-regulatory organizations (SROs) to oversee investment advisors.
About 150 advisor and broker members of the Financial Services Institute (FSI) gathered in Washington over the past two days as part of FSI’s 7th annual advocacy meeting to tell members of Congress to support Bachus’ draft SRO bill—and to make sure that the Financial Industry Regulatory Authority (FINRA) assumes that SRO role.
Dale Brown, president and CEO of FSI, said that FSI members representing 32 states “will speak personally to over 260 congressional offices—practically half of the U.S. Congress” on Wednesday.
Brown also cited some “victories” FSI has achieved over the past year, including a “temporary victory” in getting the Department of Labor to repropose its rule amending the definition of fiduciary under the Employee Retirement Income Security Act (ERISA), and the Securities and Exchange Commission delaying changes to rule 12b-1 “indefinitely.”
Steve Luparello, vice chairman of FINRA, spoke early Wednesday morning at the FSI event before advisors and brokers headed to Capitol Hill. He said FINRA appreciated FSI’s support for FINRA as the SRO for advisors, and that Bachus’ discussion draft “hits on all of the points that are important to us.” FINRA, he said, is a “strong supporter of the discussion draft.”
Luparello went on to say that an SRO would fill the “gap in investment advisor oversight,” stating that only 9% of SEC-registered investment advisors were examined in 2010. “At that rate, the average registered adviser could expect to be examined less than once every 11 years. FINRA and the SEC, by contrast, examine about 55% of broker-dealers each year.”
The draft legislation by Bachus (left), R-Ala., Luparello said, “would establish the authority and set a framework of requirements” for an advisor SRO. These requirements include provisions that would ensure that the SRO’s regulatory program reflects the nature and diversity of the investment adviser industry.” Luparello also addressed “concerns” expressed by the advisor community—particularly those entities not affiliated with a broker-dealer—that have “consistently opposed the SRO concept, and especially FINRA as that SRO.”
These advisors, he said, “have mounted a campaign that is focused on the premise that the SEC should receive the necessary funding from Congress to comprehensively regulate investment advisors.” However, "the reality" of that happening, he said, “is unlikely.”
Whenever the discussion moves to whether FINRA should be the SRO for investment advisors, “the talking points in opposition,” Luparello said, are that “FINRA is not qualified because it only regulates broker-dealers and therefore doesn’t understand the differences between the two models.”
Advisors, he said, believe they would be “forced to live under a broker-dealer regime. That’s simply wrong.”
FINRA, he continued, agrees “that there are important differences between broker-dealers and investment advisers.” Any entity that would be empowered to oversee advisors, he said, “would need to recognize that and regulate accordingly—and FINRA most certainly would.”