More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
JPMorgan CEO Jamie Dimon spoke out quickly against the hedging/betting practices that, it appears, caused the firm’s $2 billion (or more) loss over just a six-week period. Dimon stated the hedge was “poorly reviewed, poorly executed, poorly monitored,” and, most importantly, irrespective of whether it violated the Volcker Rule, it most emphatically violated the “Dimon Principle,” according to Dimon himself.
What is the Dimon Principle? Does it apply to fiduciary duty? As luck would have it, we have an opportunity to see whether it does or not.
Securities investigator and former SEC staffer Edward Siedle recently reported in a Forbes column regarding a nonprofit client and how JPMorgan Chase Bank applies fiduciary duty.
According to Siedle, “when asked (about fiduciary status), a representative of the bank stated that the bank was a fiduciary with respect to the client’s accounts and referred the client and me to a document entitled, Investment Accounts and Services Offered by JPMorgan Chase Bank, N.A. and Affiliated Banks.”
The meaning of the statement “the bank (is) a fiduciary…” begins to take shape in this document.
Siedle notes the JPM document language suggests fiduciary duty may not apply when JPM executes trades or sells alternative investments. Additional language lists a host of “Conflicts of Duty," but offers no explanation of the implications of the conflicts for the investor, or opportunity to provide explicit informed consent on each conflicted transaction. Numerous circumstances are mentioned where additional fees or expenses may be levied against the client, but there is no explanation as to the amounts of fees or expenses. Further, the bank may “effect” the purchase or sales of securities for the client account “which may coincide,” coincidentally, with the purchase or sales of “the same Securities” … of “the account of Morgan affiliates.”
It appears when the bank representative said the bank was a fiduciary with “respect to the client’s accounts” he or she meant only some of the accounts some of the time. The Dimon Principle is as high—or higher—a standard as is the Volcker Rule.
A central question for retail investors is whether what JPM suggests is its fiduciary duty rule meets the higher demands of the Dimon Principle.