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 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.
A new draft of Rep. Spencer Bachus’ bill calling for a self-regulatory organization for advisors is expected out “very soon,” David Tittsworth, executive director of the Investment Adviser Association in Washington, D.C., told AdvisorOne Wednesday.
After the revised discussion draft is released—which probably won’t be this week as the House is in recess—it’s likely that Bachus (left), R-Ala., chairman of the House Financial Services Committee, and Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Capital Markets Subcommittee, “will mark up the bill in the Capital Markets Subcommittee followed by the full Financial Services Committee soon thereafter,” Tittsworth says.
While it’s hard to speculate what revisions the draft legislation will include, Bachus’ office has been deluged with visits from members of the advisor and broker-dealer industries airing their concerns about the original draft bill, which was released on Sept. 8. As Tittsworth (left) points out, state regulators oppose the requirement in Bachus’ first draft that state-registered advisors would have to join an advisor SRO. Industry groups have been lobbying for other changes as well.
The Securities and Exchange Commission can’t move forward with an SRO until Congress enacts legislation telling it to do so. The idea of an SRO for advisors has raised much controversy among RIAs, broker-dealers, and industry groups as to which organization, if any, should be charged with that duty.
Bachus' proposed bill would shift regulation and oversight of investment advisors to the Financial Industry Regulatory Authority (FINRA) or another private regulator, except for certain advisors whose assets under management are concentrated in mutual funds, private funds, or large clients.
While an SRO bill may get through the House, the SRO bill looks to be a tough sell in the Senate. A Senate Banking Committee spokesperson told AdvisorOne that Senate Banking Committee Chairman Tim Johnson, D-S.D., believes the SRO issue “deserves further exploration before moving forward with any legislative proposals.”