More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Dale Brown, president and CEO of the Financial Services Institute, is a perennial member of the IA 25. He’s led the agency since its inception eight years ago. Over that time, FSI has carved out a place in the industry as a vocal and important advocate for financial advisors, and Brown has appeared on our list six times.
“In a relatively short period of time,” he says, “we’ve established ourselves as a strong and effective voice for independent financial services firms and independent advisors that they partner with. We’ve had a real impact on important issues impacting members, their businesses, their clients.”
Brown runs down the list of achievements FSI has enjoyed over the last year. H.R. 4, which would have expanded 1099 reporting, was repealed. Also, legislation in California that would have changed advisors’ independent contractor status was amended. Advisors “are independent business people. They are not employees of the broker-dealer,” Brown said. FINRA’s Suitability Rule 2111 was delayed.
One very significant, if temporary, victory, Brown said, is in convincing the DOL to hold off on its fiduciary proposal.
“We succeeded in getting the Department of Labor to withdraw and commit to repropose a proposal to redefine fiduciary under retirement security law and redefining who would be allowed to provide retirement planning advice to millions of small investors,” he said, calling the DOL’s rule a “very, very flawed proposal.”
“Through our efforts and working closely with coalition partners, we succeeded in getting the DOL to withdraw it,” he said. “Hopefully, when they come back this year with a reproposal it’ll be better. We’ll see.”
“We’re also building on the success we’ve had to expand our capacity,” he says. The agency doubled its membership in 2011, and the independent business model is growing. Members are increasing the business they do with their current clients and adding new clients, Brown says. Industry professionals have also started to move from other business models to the independent model.
Perhaps the agency’s biggest influence is its role in shaping the Dodd-Frank Act.
“We're a leading voice in an important area of implementing Dodd-Frank in terms of harmonizing broker-dealer and investment advisor oversight,” Brown says. “There is a critical need to address a serious investor protection gap."
Brown is optimistic about the industry’s future.
“The independent financial advisor partnership of independent financial services firm is stronger than ever in the face of tremendous regulatory burden,” he says. “Not a single independent financial advisor contributed to the financial crisis, and yet it’s shown investors the value of independent financial advice.” Furthermore, FSI members recognize how important it is to advocate for themselves and defend their businesses, Brown says. “They understand we’re at a pivotal point in history. Rules are being rewritten that will be in place for decades and will dramatically impact their business and their clients.”
The biggest challenge advisors will face over the next 12 to 18 months, Brown says, is the continued uncertainty surrounding regulatory changes. Advisors already face a “horrendous regulatory burden,” he says, one that is “exacerbated by the fact that there’s not clarity on how it’s going to change. We know change is coming; nobody can predict how it’s going to change. We believe there will be and we support a new uniform fiduciary standard for everyone that’s providing retail investment advice, and yet we have no idea exactly what that standard will look like. We don’t know when it will be in effect.”
“That makes it very hard to run a business.
Find out who was named on the 2012 IA 25 in Investment Advisor's May issue.
Check out more extended interviews of the 2012 IA 25 at AdvisorOne.
Read more about Dale Brown from the 2011 IA 25.