More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- 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.
In a wide-ranging interview on May 23, Raymond James’ Chet Helck provided an update on the company’s line of credit products and spoke of how the recent acquisition of Morgan Keegan will provide benefits to all of Raymond James’ advisors. He also addressed the importance and the challenges of applying a fiduciary standard to all professional advice givers.
Speaking in Orlando at Raymond James Financial Services’ professional development national conference, Helck, the head of RJ’s Private Client Group, reported that the line of credit offering, which he said was rolled out in March specifically for use by high-net-worth clients, was “more of a defensive strategy than an offensive” move.
Bigger banks were providing similar services, he said, making loans for the wealthy, often business owners or other professionals, and using as collateral the client’s liquid securities. “We can’t outspend the bigger banks, but we can be nimbler,” Helck said. He noted that the rate of the loans, made through Raymond James Bank, are based on the amount of collateral pledged, not the amount of the loan.
That’s just one example of how Raymond James is aligned with its advisors and their end clients, Helck said. That’s also where the Morgan Keegan acquisition, finalized in April, will benefit advisors. “Clients are interested in munis,” Helck said, and “we’ll have a menu” of municipal bond solutions that advisors across Raymond James’ various channels can access. However, Raymond James itself won’t provide any “encouragement” to advisors to recommend or sell those bonds. While Raymond James does have "a little product," its roots and its current focus are "in the financial advisory business."
Turning to regulatory issues, Helck said that “the world is moving in a direction to a higher standard for those giving advice to the public," and that for Raymond James, “we see that as no problem” if a fiduciary standard is imposed. However, he argued that “the devil is in the details.” And while “the world is saying, we want to know” the details of any transaction, doing what’s best for the client “doesn’t mean it’s always the least expensive.”
Moreover, there are issues with extending a '40 Act fiduciary duty to all reps. That duty “was designed to cover discretionary accounts; it doesn’t work in non-discretionary” accounts, he said, pointing out that “most advisors have multiple accounts.” Principal trades are also “forbidden under the '40 Act,” which is a problem for broker-dealers who have, for instance, municipal bond inventory. By selling odd lots of bonds to clients, the firm is putting their interests first, because those clients are gaining access to discounted bonds which only institutions could usually afford. The broker-dealer, however, “should be paid” for providing that service to end clients because otherwise “you’re going to lose money on that inventory.” That means, Helck concluded, that “we’ve got to write a new rule,” which he suggestesd could take some time to accomplish.