More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
The Dodd-Frank Wall Street Reform Act is less than perfect, said Sheila Bair on Thursday at the TD Ameritrade Institutional 2012 conference, but the nation is “still better off for it.”
The former chairman of the FDIC (left) received warm applause from advisors when one advisor complimented her for her role during the financial crisis. “You built trust instead of destroying it,” the advisor said, prompting the applause from many of the 1,300 or so advisors attending the conference, but then asked a pointed question about one of the weaknesses of Dodd-Frank. “Derivatives were off the balance sheet” at the big banks, he pointed out, then asked, “Does Dodd-Frank regulate that?”
Bair responded, “No,” and said she “worries a lot about that,” even though she said the SEC is “improving disclosure on the gross exposure” of the big banks. “I wished we had done more” on that issue in Dodd-Frank. “It’s a safety and soundness issue” for the banks, she argued. Over all, she said, it’s still “important for regulators to ‘calibrate’ Dodd-Frank regulations,” and that several data-gathering requirements of Dodd-Frank will help forestall another crisis, and even over-regulation. “The problem with not having enough information is that you tend to do too much” as a regulator, rather than too little.
As for any changes to Dodd-Frank, she expressed a fervent desire that Congress not change Dodd-Frank's provisions allowing regulators to resolve banks formerly seen as "too big to fail," and encouraged advisors worried about a recurrence of the big bank bailouts to look at the "very granular" documents on the fdic.gov website showing that the FDIC has "a way to resolve these big banks."
When she was asked what she thought of the current European sovereign debt and banking crisis, Bair said that “the lesson of Europe is that you can’t have monetary integration without fiscal integration.” She remains fearful, she said, that Europe “will go into recession” which would hurt the U.S. economy and markets, but that “the risk of a sudden shock [in Europe] is gone because of the European Central Bank’s lending,” though she warned that “the slow drag continues” on the continent.
She also said that a number of “bone-headed mistakes” caused the 2008-2009 financial crisis, including lowered capital requirements for investment banks—“they weren’t lowered for commercial banks, so they weren’t the problem”—but that the Federal Reserve’s decision not to require stricter disclosures on mortgages helped as well. “Mortgage applications,” she lamented, “continue to be indecipherable.”
A Republican and a native of Kansas who started her career in Washington as counsel to Sen. Bob Dole, Bair said that financial services used to be a nonpartisan issue in Washington. Despite the efforts of Sen. Chris Dodd and Rep. Barney Frank, she noted, one of the shortcomings of Dodd-Frank is that it wasn’t a bipartisan effort. Having served under four Presidential Administrations, Bair had kind words for President Barack Obama. “He was more hands-on” than the previous three Presidents, whom she said considered financial services a “technical” issue. In her conversations with Obama, she said he “had detailed knowledge on the banking system,” and “asked quite sophisticated questions.”
Read full coverage of TD Ameritrade's conference at AdvisorOne.