More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
You’ve probably read recent media reports about FINRA altering documents it sent to the SEC, and the subsequent problems those episodes are creating for SEC Chairman Mary Schapiro. It seems that in at least three separate cases during the eight-year tenure of Ms. Schapiro in senior FINRA/NASD roles, the securities industry regulator doctored files before submitting them for SEC audit. In articles such as Investment News' “Schapiro in the Hot Seat” and the like, and online calls for the Chairman’s resignation, much of the blame for what certainly could turn out to be a pattern of deception (rather than mere isolated incidents) is being laid at Schapiro’s feet.
Although at times I’ve been critical of Chairman Schapiro in this blog and elsewhere, I have to admit to failing to see the logic here (I know, at some point, I’m going to have to face the possibility that it just might be me). There is not one reported shred of evidence that Ms. Schapiro, in any of her former positions, had anything to do with these alterations, or any knowledge of them, nor is anyone, as far as I know, claiming that she did. What’s more, I’m guessing that during those eight years, FINRA submitted a fair number of documents to the SEC; I’m just taking a wild stab here, but I’d bet it’s in the neighborhood of somewhere between 100,000 and say, a billion. If only three of them were altered for whatever bureaucratic, kiester-covering reasons, that seems like a pretty impressive record to me.
More importantly, my primary concern about Mary Schapiro’s appointment to SEC chair was that, as the former head of enforcement and then CEO of FINRA, it was possible that she might be overly disposed to accept business as usual at the brokerage firms, without considering the effect on investors, which is the Commission’s mandate. To date, as far as I’m concerned, the jury is still out on that one: her rhetoric has been encouragingly consumer-oriented, while her actions so far haven’t quite lived up to that promise.
Yet I find myself strangely encouraged by these recent document-doctoring revelations. Not that they happened, but that they came to light at all. It’s not a stretch to wonder whether two former FINRA executives at the top of the SEC—Schapiro and Commissioner Elisse Walter—might use their positions to sweep revelations embarrassing to FINRA under the political rug. Clearly that didn’t happen. And it didn’t happen at time when such embarrassments could prove to be extremely damaging to FINRA and its current efforts to become the regulator of registered investment advisors.
By themselves, these incidents probably aren’t likely to tank FINRA’s chances. But combined with stiff opposition from the RIA community and waning interest on the part of Congressional Republicans, who seem to have turned their attention to repealing Dodd-Frank in toto, perhaps a FINRA absorption of investment advisors is no longer the odds-on favorite.