More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
As a final follow-up to my Jan. 16 AdvisorOne blog (Fiduciary Debate: What if Doctors Could Act Like Advisors?), a comment by Svensan03 raises an interesting issue, albeit with a rather off-the-wall analysis, but then redeems his or her self by offering an on-the-money solution to the fiduciary debate. First, here’s what Svensan03 had to say about an advisory profession: “Your penchant for comparing apples with oranges is annoying. The art of medicine is a "licensed" profession. Licensees are neither supervised nor audited by regulators, but rather, disciplined for their mistakes through Arbitration and the legal system after the fact. Advisors who provide advice regarding regulated securities will NEVER, let me repeat that...NEVER, be "licensed."
I am indeed aware of the difference between a “licensed” profession and a regulated business. In fact, it was the CFP Board’s decision when it was created in 1987 to opt for a trademarked business model that has hampered the emergence of a financial planning profession for the past 25 years. Because professional licensing would entail a separate board in each of the 50 states, raising the issue of reciprocity and uniformity of standards—not to mention greatly reducing the role of the national board—the CFP Board’s predecessor the IBCFP decided to trademark the CFP designation instead, and then license its use to qualified financial planners.
Not only did this decision lead to many years of minimal oversight of CFPs, out of fear that someone would challenge the Board’s right to the trademark, but led to the evolving list of descriptions for CFP holders—licensees, designees, certificants—which made them sound more like confused hairstylists (not that there’s anything wrong with that) than professionals—and to the Board’s adamance that it was/is essential that CFPs religiously use the moniker du jour, or else all hell would break loose.
With that said, there’s no reason that financial advisors can’t evolve into licensed professionals—after all, neither medicine nor the law started out licensed. What’s more, Svensan03 isn’t exactly right about the way professions are regulated: physicians are regulated by medical ethics boards that can yank their license to practice medicine long before they ever see a courtroom; and state bar associations regularly discipline unethical attorneys. An SRO for independent investment advisors would be sort of a halfway measure, allowing for self-policing while maintaining some central government oversight via the SEC. The FINRA alternative would be far more on the government/bureaucracy side of the scale since it has no experience with either independent or professional advisors; the “self” regulation would be lost.
Svensan03 goes on to redeem her or himself by addressing this issue as well: “Either do away with the Series 6 & 7 registrations and make everyone a fiduciary advisor, or, force Series 6 & 7 reps back into their traditional role as salesmen/women who provide a transactional service to a public that wants that service, for a commission, under the doctrine of Caveat Emptor... EVERYTHING ELSE IS DISHONEST!”