More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- 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.
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.