More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
Two “interesting” items in the news recently, both with implications for the broker/advisor reregulation currently underway in Washington, have left me feeling as if I’ve entered into Bizarro World. The first involves the SEC continuing its “crackdown” on RIAs; the second is House Republicans under Rep. Spencer Bachus, R-Ala., withholding additional funding for the SEC. A skeptical mind might even see a connection between them.
As it might possibly be the cause of bizarro issue #2, today lets tackle the House Financial Services Committee’s rejection of the Obama Administration’s proposal to increase the SEC’s funding next year (as reported by AdvisorOne’s Melanie Waddell on March 7). The Committee turned down an amendment by Rep. Barney Frank, D-Mass., to increase the SEC’s budget some 18.5% (to $1.56 billion) largely along party lines. No, that’s not the weird part; it gets worse.
Rather than arguing against such a sizeable increase at a time when the Federal Government is hemorrhaging red ink in increasing volumes (which at least would have been understandable), it seems that the Republican lawmakers' penny-pinching was intended to punish the SEC for its failure to prevent recent financial scandals (including Bernie Madoff) and for wasting its time on “non-mandatory rulemakings, such as the imposition of a fiduciary standard of care for broker-dealers,” pointing out that the Commission had failed to “adequately justify” its recommendations on the issue.
Where does one even begin to deconstruct this argument?
Perhaps I missed something, but didn’t Section 913 of the Dodd Frank Act specifically require the SEC to submit to Congress a study of the issues involved in a broker fiduciary standard, along with its recommendations for implementation of such a standard?
Had the SEC failed to submit the required fiduciary study (along with a score or more of other in-depth studies mandated by Dodd Frank), would the Bachus committee then have denied increased funding for failure to comply?
More importantly, didn’t the discussions about Wall Street reform in the Dodd Frank Act focus on the SEC’s inability to oversee the mounting risk that Wall Street investment banks were taking on? Wasn’t the Act meant to uncover the hidden risks of mega-sophisticated markets in derivative mortgage-backed securities, to supervise the growing conflicts of interest for securities rating agencies and to monitor the snowballing risk in the whole financial system?
I’m just a simple journalist, but it seems to me that each of these (in addition to instituting a fiduciary duty for brokers) represents a massive undertaking in a world that is becoming exponentially more complex every couple of years. At least on the surface, “punishing” the SEC for its inability to get on top of all this seems, well, counter-productive.
Yet while the reasoning of the House Republicans for withholding SEC funding may seem illogical, their message is pretty clear: They, like SIFMA, don’t support a fiduciary standard for brokers, and they intend to use their control of the purse strings to bring the SEC into line.
That not only doesn’t bode well for the fiduciary standard, it doesn’t bode well for independent RIAs, which I’ll talk about in my next blog on the SEC’s escalating crackdown on investment advisors, which is, if anything, even more bizarre than the budget freeze.