More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- The Custody Rule and its Ramifications When an RIA takes custody of a clients funds or securities, risk to that individual increases dramatically. Rule 206(4)-2 under the Investment Advisers Act (better known as the Custody Rule), was passed to protect clients from unscrupulous investors.
The Securities and Exchange Commission (SEC) approved Wednesday a rule that directs national securities exchanges to adopt listing standards for public company boards of directors and compensation advisors.
The new rule, required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires exchange listing standards to address:
- The independence of the members on a compensation committee;
- The committee’s authority to retain compensation advisors;
- The committee’s consideration of the independence of any compensation advisers; and
- The committee’s responsibility for the appointment, compensation, and oversight of the work of any compensation advisor.
Once an exchange’s new listing standards are in effect, a listed company must meet the standards in order for its shares to continue trading on that exchange, the SEC says.
“This rule will help to enhance the board’s decision-making process on executive compensation matters, particularly the selection, engagement and oversight of compensation advisors, and will provide more transparency with respect to conflicts of interest of consultants engaged by boards,” said SEC Chairman Mary Schapiro, in a statement.
Section 952 of Dodd-Frank requires the SEC to direct the exchanges to adopt certain “listing standards” relating to the independence of the members on a compensation committee, the committee’s authority to retain compensation advisors, and the committee’s responsibility for the appointment, compensation and work of any compensation adviser.
The SEC says it also amended its proxy disclosure rules to require new disclosures from companies about their use of compensation consultants and conflicts of interest.
The new rule and amendments will take effect 30 days after publication in the Federal Register. As the SEC explains, no later than 90 days after effectiveness, each exchange that lists equity securities must propose listing standards that comply with the new rule. The new listing standards must be approved by the Commission within one year of the new rule becoming effective.