More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- 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.
A couple of days after announcing that he won’t seek re-election in 2012 and plans to retire from Congress at the end of next year, Rep. Barney Frank, D-Mass., ranking member on the House Financial Services Committee, told AdvisorOne on Thursday that he “doesn’t like” his committee chairman’s bill calling for a self-regulatory organization (SRO) for advisors.
Frank told AdvisorOne, after addressing attendees at the Consumer Federation of America’s (CFA) financial services conference in Washington, that GOP lawmakers’ excuse that an SRO for advisors is needed because the Securities and Exchange Commission (SEC) lacks the resources to handle advisor exams doesn’t hold water. Frank has been a staunch proponent of boosting funding for the SEC.
A new draft of House Financial Services Committee Chairman Rep. Spencer Bachus’ bill calling for an SRO for advisors is expected out soon, possibly before Congress’ tentative Dec. 18 break. The Dec. 18 recess date is a moving target, as Congress has yet to resolve several tax issues, namely the payroll tax cut which expires at the end of the year.
While Frank will remain a tough and influential legislator throughout 2012, his status as a ranking member on the financial services committee likely won’t prevent an SRO bill from being reported out of his committee. However, his objections to such legislation “can create a strong partisan bill” that reaches the House floor and “sends a signal” to the Senate about the problems associated with an SRO, Marilyn Mohrman-Gillis, managing director of public policy for the Certified Financial Planner (CFP) Board of Standards, told AdvisorOne.
An SRO bill already looks to be a tough sell in the Senate.
The SEC can’t move forward with an SRO until Congress enacts legislation telling it to do so. 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.
Ken Bentsen, executive VP of public policy and advocacy at the Securities Industry and Financial Markets Association (SIFMA), told CFA attendees that SIMFA would like to see Bachus’ SRO bill “move” forward. While SIFMA supports an SRO for advisors, Bentsen said, “We haven’t come to the view that it ought to be FINRA” even though “a lot of [SIFMA’s] dual registrants believe it should; not because they are ‘in love’ with FINRA but because we have a ‘healthy relationship’ with FINRA.”
Lawranne Stewart, deputy chief counsel for Barney Frank’s office, who sat on the same panel with Bentsen to discuss the future of securities regulation, said that an SRO for advisors “will be a hot topic for a while.”
Barbara Roper (left), director of investor protection for CFA, who sat on the same panel with Stewart and Bentsen, reiterated the fact that CFA “removed its opposition” to an SRO when it saw there was no chance Congress would award the SEC additional funding, something CFA has continually fought for.
During Frank's press conference on Monday from his home state announcing his retirement, he acknowledged that the “very substantial changes” in congressional redistricting was a primary reason he decided not to seek re-election, adding that such redistricting changes would take him away from serving his current constituents and protecting financial reform—one of his top goals.
Frank told attendees at the CFA event that the “public is committed to the financial reform bill continuing.”
Frank went on to say that “one of the gravest public policy mistakes Congress made this year” was the failure to increase funding for the Commodity Futures Trading Commission (CFTC). Despite having to regulate the derivatives market, and complaints of lax oversight of firms like failed MF Global, the House proposed that the CFTC get 15% less in funding in 2012 than it had this year, Frank said.
Also, the committee Frank sits on passed three bills on Wednesday to loosen derivatives rules in the Dodd-Frank Act that many had complained were too broad. The full House will now vote on them.