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.
Republican members of the House Financial Services Committee rejected, 25-17, an amendment introduced by Rep. Barney Frank, D-Mass., that called for approving President Barack Obama’s proposed budget increase for the Securities and Exchange Commission in 2013.
The Obama administration’s budget request for next year includes boosting the SEC’s budget to $1.566 billion, which is an 18.5% increase over the SEC’s 2012 appropriation.
Frank (left), ranking member on the committee, inserted his amendment during markup of the Budget Views and Estimates bill on Tuesday, but Republican members of the committee voted against the amendment, citing the recent financial scandals as evidence that the SEC has done an inadequate job and thus doesn’t deserve the boost in funding.
Rep. Mel Watt, D-N.C., said during the markup that “according to you [Republican members], the SEC wasn’t proficient and according to us [Democratic members], they didn’t have the resources to be proficient … but you don’t make an agency more proficient by starving it.”
Republican members of the committee also complained that the SEC continues to spend time and resources on “nonmandatory rulemakings, such as the imposition of a fiduciary-like standard of care for broker-dealers.” They cited comments from former SEC Commissioner Kathleen Casey and current Commissioner Troy Paredes that the SEC staff had failed “to adequately justify its recommendation that the commission embark on fundamentally changing the regulatory regime for broker-dealers and investment advisors.”
Instead, the Republican committee members said the SEC could better protect investors and prevent another Bernie Madoff-like fraud by using its resources to conduct more examinations of registered investment advisors. In FY 2011, 8% of registered investment advisors were examined and the commission projects that it would examine 11% of registered investment advisors in FY 2013, GOP members said.
Rep. Jo Ann Emerson, R-Mo., chairman of the House Subcommittee Financial Services and General Government Committee on Appropriations, asked SEC Chairman Mary Schapiro the same day during a hearing on the proposed budget boost why the agency needs a spending increase of $245 million over 2012’s level when the agency’s budget in 2011 also saw a $200 million increase over the previous year. “Most agencies haven’t received increases like the SEC,” Emerson said. “How have investors benefited from such large increases?” she asked Schapiro.
Schapiro replied that the agency recognizes “we are close to unique compared to other federal agencies” in its increased budget levels, but the SEC "was underfunded for years,” and the agency needs a boost in funds to deal with complex markets and financial transactions. Since the Bernard Madoff Ponzi scheme, “we have successfully restructured the enforcement program to focus on risky practices” and the agency’s exam program is now using a more risk-based approach.
But without additional resources, Schapiro told the subcommittee, the SEC’s examination of investment advisors could be compromised. “The investment industry is rapidly evolving, with the development of new products posing new risks to investors and the increased complexity of the markets posing challenges to regulators,” she said. “In FY 2013, additional resources would bolster the agency’s ability to inspect and examine the expanding breadth of entities under our jurisdiction. Without these resources, the increasing complexity of registered firms and the disparity between the number of exam staff and the firms could compromise the effectiveness and credibility of the commission’s inspection and examination program.”