More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- 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.
On two of the top issues affecting the investment advisory space, Mary Schapiro, chairman of the Securities and Exchange Commission, is adamant: Brokers should be held to a fiduciary mandate and a self-regulatory organization to help the agency examine advisors must be explored.
Since Dodd-Frank gave the SEC the authority to write a rule to put brokers under a fiduciary mandate, Schapiro has been waging a battle to ensure such a rule sees the light of day.
But Schapiro told Investment Advisor in an exclusive interview in mid-March that while she’s hopeful a proposed fiduciary rule will be unveiled this year, those in the industry shouldn’t count on it being one that is identical to the fiduciary rule being crafted by the Department of Labor.
“We have talked a lot with the DOL and we’ve tried to coordinate and work with them, but they have to operate under the Employee Retirement Income Security Act (ERISA), which is quite a different statute than the federal securities laws,” Schapiro said. In crafting its fiduciary rule, the SEC is looking at “advice about securities to retail customers,” she continued, “and so the issues we would be concerned about are somewhat different than those that DOL is concerned about under ERISA.”
A uniform fiduciary rule crafted by the agency, however, will be business-model neutral, she said—a term that has had many in the advisory community scratching their heads. But Schapiro explained that under the SEC staff report recommending that brokers adhere to a fiduciary duty that was sent to Congress and was mandated under Section 913 of the Dodd-Frank Act, the SEC staff said “that if the Commission moves forward with the staff’s recommendation to create a uniform fiduciary standard for retail customers when recommendations are made about securities that it be ‘business neutral’ so that we’re not favoring a particular model--investment advisor, BD or a particular compensation structure--over another.” Still, those in the advisory community argue that exactly how this business-model neutral approach is crafted will be crucial to determining whether the agency actually ends up putting brokers under a fiduciary mandate.
Despite being deluged with Dodd-Frank rulemakings and other priorities such as “a very big enforcement pipeline,” oversight of the municipal securities markets and post flash-crash reforms, Schapiro said that she believes crafting a fiduciary duty rule for brokers is a “very important” priority for the agency.
“I don’t know where the Commission will be on this” fiduciary rule, Schapiro told Investment Advisor. “I know that my personal view is that investors should not have to figure out based on the title on the business card of the person sitting in front of them what standard of care they are entitled to. The regulatory system should not put them in that position when [the advisor and the BD rep are] engaged in the exact same conduct.”
Another priority for the commission, Schapiro said, is ensuring the agency can adequately examine the advisors it oversees. But even after the switching of advisors with between $25 million and $100 million in assets under management to state registration come July, Schapiro said the SEC will “absolutely not” be able to adequately examine advisors.
Despite the fact that 3,000 advisors previously registered with the SEC will be switching, she said, the SEC “will take on hedge funds and other private funds so the assets under management will actually increase and our responsibilities will be greater.” Last year, she said, the SEC inspected 8% of advisors, “and one-third of advisors have never been examined by the SEC. My personal view is that’s not sufficient; we need a much greater presence.”
Said Schapiro, “I think we have to look at the option of an SRO.”
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 Mary Schapiro from the 2011 IA 25.