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.
As House Financial Services Chairman Spencer Bachus, R-Ala., confirmed that his bill calling for a self-regulatory organization (SRO) to oversee advisors, H.R. 4624, would not be marked up this month, new hopes are emerging that other options like user fees and more funding for the Securities and Exchange Commission (SEC) still have a chance to become reality.
The Senate Appropriations Committee voted 16 to 14 on a party-line vote to report its appropriations bill to the full Senate, subject to amendment, according to a spokesman for Sen. Dick Durbin, D-Ill., the second highest ranking Democrat in the Senate, who chairs the appropriations subcommittee. The bill includes a boost in funding for the SEC.
Bachus’ recently announced committee schedule for the remainder of June omitted a markup of the bill that industry officials expected to take place late in the month. These same officials predicted after a June 6 hearing on H.R. 4624, the Investment Adviser Oversight Act of 2012, that the date would be pushed back.
However, Dan Barry, managing director of government relations and public policy for the Financial Planning Association (FPA), says Bachus’ bill could come up for a vote in July. “The expectation is still that Chairman Bachus intends to move the bill forward through committee,” Barry told AdvisorOne on Thursday. “The timing depends on how quickly they can address some of the issues that have been raised through amendments.”
For instance, Barry said, "how state [registered] advisors are dealt with under the bill is one of the most contentious and challenging issues."
Duane Thompson, senior policy analyst with fi360, agrees that Bachus' bill "will pass [the] committee, just later than expected and with some additional tweaks. Possibly a couple no votes by Republicans on final passage from committee."
At the June 6 hearing, Rep. Maxine Waters, D-Calif., announced that she plans to introduce legislation to allow the SEC to collect user fees to fund advisor exams. The yet-to-be-named bill would allow the SEC to determine the amount of the user fees based on an advisor’s size—including assets under management and the number and types of clients, as well as the advisor’s risk characteristics.
While the best approach to improving advisor oversight is to “build on the current SEC program,” says Barry of FPA, “paying a user fee to the SEC is a better concept than paying it to an SRO.”
A day before the SRO hearing, the House Appropriations Committee allotted $1.37 billion to the SEC for fiscal year 2013—$195 million below President Obama’s request—and an amount that industry officials agree will starve the SEC of the necessary funding to boost oversight of advisors.
During the June 6 hearing, the co-sponsor of the SRO bill, Rep. Carolyn McCarthy, D-N.Y., stated: “Would I like to get more money for the SEC? Yes, I would. But we are not going to get the money for the SEC; it’s not going to happen.”
The SEC requested $1.57 billion for fiscal 2013, an increase of $245 million above the agency’s fiscal 2012 appropriation, which the Senate Appropriations Committee granted on Tuesday.
Barry of FPA says that with the Senate appropriation, "it's encouraging that there’s still some will on Capitol Hill to improve oversight through funding the SEC. That’s the simplest and most effective approach and it won’t cost taxpayers because the money comes from transaction fees.”
Barry says “some of the increase" in the Senate committee's planned allotment "will go to advisor oversight.”
Thompson of fi360 adds that "even in the unlikely event the Senate version [of the SEC funding bill] was approved, that still won't end the debate over the advisor SRO."
Opponents of an SRO for advisors—particularly if that SRO turns out to be the Financial Industry Regulatory Authority (FINRA)—cite insufficient oversight by the SEC and Congress, conflicts of interest and excessive costs.
Advisors responding to the TD Ameritrade poll also offered the following opposing comments to an SRO:
- “There is an increased need for oversight to come from industry educated AND experienced individuals. Increasing regulation by those who do not have a complete understanding of the industry is killing jobs, good firms, and hurting the end client.”
- “I am deeply concerned about FINRA or an SRO being authorized as the regulator for registered investment advisors. I believe there is an inherent conflict of interest in allowing the FINRA members (mainly wirehouses and broker-dealers) to regulate RIAs. These firms have a vested interest in maintaining their commission sales brokerage platforms, which I think places them at direct odds with RIAs. This is apparent in the way they have fought against fiduciary standards for brokers. I’m hopeful that the states and/or the SEC continue to provide regulatory oversight.”
- “I have a small practice and am concerned that I would be forced out of business if fees were raised significantly. Also I value my fiduciary role as an RIA and do not feel that FINRA is an appropriate regulator for registered investment advisors due to its association with and focus on the brokerage industry.”