More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- 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.
Despite launching a new fact-finding initiative regarding what potential conflicts of interest brokers face when advising individual retirement accounts (IRAs), the Department of Labor told AdvisorOne on Jan. 9 that it plans to release its reproposed rule revising the definition of fiduciary “during the first half of 2012.”
Updating the fiduciary definition under the Employee Retirement Income Security Act (ERISA) is one of the DOL’s Employee Benefits Security Administration’s (EBSA) “most important regulatory projects,” the spokesman told AdvisorOne in an email message. “We are working to complete our cost-benefit analysis and re-issue the rule as soon as possible.” As EBSA has said previously, “we want to take the time to get this rule right, and we are working diligently to do exactly that.”
EBSA’s Office of Policy Research sent a letter to industry trade groups on Dec. 15 asking for each group’s “voluntary assistance” in helping the Administration in its newly expanded regulatory impact analysis that will assess the impact of the reproposed fiduciary rule on ERISA plans and IRAs. Applying a fiduciary standard to IRAs is one of the more controversial aspects of the reproposal.
EBSA asked the groups to provide it with data that will “more rigorously and definitively determine what impact, if any, conflicts of interest faced by brokers or others who advise IRAs have on IRA investors.”
EBSA asked the trade groups to provide such data within 30 days.
Chris Paulitz, a spokesman for the Financial Services Institute, says FSI is “working diligently” to fulfill EBSA’s request despite the fact that it came during the holidays with a very tight deadline. “We will deliver everything we can to the department in our constant effort to be a good resource for the administration,” he said.
Fred Reish (left), partner and chair of the Financial Services ERISA Team at Drinker Biddle & Reath in Los Angeles, predicts that DOL will extend the exemptions of Prohibited Transaction Class Exemption 86-128 to virtually all advice given to the owners of IRAs.
In other words, Reish says, it is likely that both broker-dealers and RIAs will be able to give individualized advice to IRA owners and receive compensation that is not level. That is, the compensation may vary based on the recommendations, which would be more consistent with a broker-dealer business model than with an RIA business model.