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.
- 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.
With the two-year anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, industry officials are weighing in on the law’s progress and how the presidential election in November may affect the final shape of two areas of Dodd-Frank that, for advisors, remain unresolved: a fiduciary duty rule for brokers and a self-regulatory organization (SRO) to oversee advisors.
As of now, the Securities and Exchange Commission (SEC) has yet to propose a rule to put broker-dealers under a fiduciary duty when providing personalized investment advice to retail customers under Section 913 of Dodd-Frank. David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington, says that even if the SEC were to propose such a rule in the near future, it was “unlikely” that such a rulemaking will be finalized before the end of the year. What’s more, he says, “it is certainly possible that the fate of any such rulemaking may be affected by the results of the Nov. 6 election.”
The outcome of the election may also have a “significant effect” on if, when and how a fiduciary duty rule—as well as House Financial Services Committee Chairman Spencer Bachus’ bill to create an SRO for advisors—will be addressed, Tittsworth (right) says.
Rep. Maxine Waters, D-Calif., will introduce legislation to allow the SEC to collect user fees to fund advisor exams “in the near future,” Tittsworth says, “but it is unlikely that either approach [SRO or user fees] will be adopted this year.”
Of course, visible results of Dodd-Frank on the investment advisory community have been the “switching” of advisors with less than $100 million in assets under management from the SEC to the states, plus the required registration of private fund advisors with more than $150 million in AUM with the SEC.
Tittsworth said that as a result of the switch, the number of SEC-registered investment advisors has decreased from 12,000 to about 10,000. However, these advisors’ total collective AUM has increased to $48.6 trillion, he says. Other related regulatory requirements, Tittsworth says, including Form PF and the large-trader rule, “represent additional complexities for advisory firms that manage private funds.”
Dan Barry, managing director of Government Relations & Public Policy for the Financial Planning Association (FPA), notes that while “a lot of work has been done” in implementing Dodd-Frank, “a lot of unfinished business” remains. “Boosting investor protection through SEC fiduciary rules for brokers giving advice should remain a priority item,” he says, “as should beefing up the SEC’s oversight program for investment advisors.”
According to the law firm Dechert, as of Wednesday, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. Of these 221 passed deadlines, 136 (61.5%) have been missed and 85 (38.5%) have been met with finalized rules. In addition, 123 (30.9%) of the 398 total required rulemakings have been finalized, while 141 (35.4%) rulemaking requirements have not yet been proposed.
Indeed, this was evident at a recent congressional hearing. While members of the House Financial Services Committee sparred in early July over whether the Dodd-Frank Act is hurting more than it’s helping, representatives from various segments of the financial services community testifying before the committee stopped short of saying Dodd-Frank needed to be repealed.
Regular citizens are also signaling their support of financial reforms. An opinion poll released Wednesday by Lake Research Partners of 803 Americans likely to vote in the November election found that financial reforms enacted in response to the 2008 financial crisis remain popular.
Results of the poll, conducted from July 5 to 10 and commissioned by AARP, the Center for Responsible Lending (CRL), Americans for Financial Reform (AFR) and the National Council of La Raza (NCLR), were the following:
- Voters favor Dodd-Frank by a 53-point margin (73-20). The support crosses party lines, with Republicans in favor by a 20-point margin, Independents by a 50-point margin and Democrats by an 83-point margin.
- Voters support the Consumer Financial Protection Bureau (CFPB), created by Dodd-Frank, by a 40-point margin. Two-thirds (66%) of voters overall and 69% of independents agree that the CFPB is needed.
- Two-thirds of voters—including 78% of Republicans—support a state’s right to pass and enforce stronger consumer protections and preventing federal law from overriding them.
- Americans clearly want stronger, not weaker, government oversight of financial companies. A majority (60%) of voters, including 65% of independents, favor more government oversight. And 73% of voters support tougher rules and enforcement for Wall Street financial companies, compared to just 17% who say they don’t need further regulation.
- Voters want Wall Street to be held accountable and prevented from repeating the same actions again. Nearly two-thirds of voters (64%) agree with the statement that Wall Street must be held accountable and prevented from repeating the same actions again and believe this will help the economy. Just 28% agree with an opposing statement that Wall Street reform is a job killer that creates excessive government regulation and bureaucracy that stands in the way of our economic recovery.
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