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.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
The beginning of a new year is always a good time to catch up with Dale Brown, president and CEO of the Financial Services Institute. Brown, FSI and its members are taking up the regulatory flag to ensure independent broker-dealers and their advisors have a voice on the issues that concern them coming out of Washington. As this is our career guide, how said issues affect your business should be readily apparent.
Q: What have been the key wins for FSI in 2011?
A: 2011 was a break-out year for FSI, and we see 2012 as equally important. I’ll quickly summarize how FSI has impacted Washington and the states this year.
We successfully advocated for the withdrawal of the Department of Labor’s (DOL) proposed rule which would have redefined the term “fiduciary.” We forestalled, indefinitely, the SEC’s threatened reform of 12b-1 fees. FSI also influenced the Dodd-Frank-mandated SEC Standard of Care study which referenced FSI’s recommendations over 30 times. And we feel very good about successfully advocating for the repeal of expanded 1099 reporting requirements.
Q: And membership numbers?
A: We doubled financial advisor membership to over 30,000, which has had an impact beyond just the numbers. We were able to generate over 4,000 personalized letters from financial advisors to President Obama and met with over 260 congressional offices during our Advocacy Summit. We also spearheaded the election of over 51 FSI members to the FINRA Board of Governors, FINRA District Committees and various FINRA committees. It’s been a busy year, to say the least, and one that has continued to put FSI on the map and make us the go-to source for policy makers and regulators on our issues.
Q: How would you describe the regulatory environment at present?
A: Unfortunately, it is one of uncertainty rather than clarity. All businesses, including independent financial advisors and the independent financial services firms that serve them, need a degree of certainty so they can plan and manage their businesses effectively. Too many important regulatory issues that have a real impact on clients as well as our members’ businesses remain unsolved.
I am also alarmed by the misunderstanding and unnecessary hostility toward the financial services industry. While not a single independent financial advisor or broker-dealer caused the financial crisis, our members are experiencing the unintended consequences of the legislative and regulatory overreaction. This hurts our members and has the potential to dampen our economic recovery and hard-working Americans’ ability to plan for the future.
The DOL’s fight to redefine the term fiduciary is a clear example of a misguided overreach by regulators who do not understand our industry. If this flawed rule is adopted, 19 million American IRA holders would have to turn to the Internet or their brother-in-law for their financial advice at a time when everyone needs access to affordable, unbiased advice.
We also have an opportunity to improve the regulatory environment for clients and the industry. That’s why we’re advocating for FINRA to be the SRO for RIAs. Currently, advisors affiliated with independent broker-dealers are examined by FINRA once every two years. The SEC only examines RIAs once every 11 years and, amazingly, the SEC admitted this year that one-third of RIAs have never been examined. That needs to change for investors to have full faith in their advisors and our industry.
This, plus the ongoing attacks on small businesses, independent contractor status and Congress’ failure to enact any kind of long-term tax reform, does not bode well for a healthy regulatory environment for our industry and American investors. That needs to change soon.
Q: What issues will FSI focus on in 2012?
A: We have an aggressive advocacy agenda for 2012. We’ll continue to influence the anticipated re-proposal of the DOL fiduciary rule to ensure Americans have access to affordable advice on their IRAs. We’ll advocate for implementation of a uniform fiduciary standard of care and making FINRA the self-regulatory organization for retail investment advisors. We’ll push for effective broker-dealer disclosures in response to FINRA RN 10-54. And we’ll guard against attacks on independent contractor status for financial advisors.
In particular, we are executing plans to expand our influence in Washington and the states on overall small business issues, as well as retirement advice and products. These issues are critical to our members and they want FSI to have an expanded voice and reach due to our proven advocacy success. In 2012, we will increase our staff to give our members even greater value.
We also plan to continue our rapid membership growth. There are 180,000 independent financial advisors in the country, which means there are just under 150,000 potential new FSI members. We will build on the strong partnership we have with our firm members in growing our grassroots base of informed and engaged independent financial advisors.
Q: Lastly, how will you prepare for the outcome of the presidential election, if at all?
A: Through our political action committee, FSI PAC, we will provide financial support to like-minded candidates for Congress in 2012 and help our friends already in office stay there. We spent nearly $100,000 in the last election cycle and we plan to increase that by the end of this cycle.
We should be clear, though, that our issues will not change due to the election; our issues are long term and are not prone to extreme partisanship. Therefore, we will continue to work with people in both parties who the American people elect to represent them in Washington.
What may change with the outcome of the elections is our approach. The practical reality is that Democrats and Republicans tend to view issues from very different perspectives. Therefore, we have to make sure we are building effective relationships and delivering our message in a manner that reflects those differences and is focused on getting the results our members expect and deserve. So we will be nimble and ready to capitalize on whatever happens in the 2012 elections on behalf of our members and Main Street American investors.
This article is part of Investment Advisor's 2012 Career Guide. Click below for more articles: