More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- 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.
The 217 advisors from 161 RIA firms attending the TD Ameritrade Institutional regional conference in Southern California on Tuesday heard TD Ameritrade CEO Fred Tomczyk and TDAI President Tom Nally provide their views of the challenges and opportunities facing advisors.
In the opening session of the gathering in Dana Point, Calif., Nally reported that RIAs continue to take away market share of high-net-worth investors from the wirehouses, citing Cerulli estimates that wirehouses’ share of the HNW investor will drop from 45% in 2011 to 34% by 2014. He also argued that those HNW clients are choosing RIAs because of the fiduciary standard, but expressed misgivings that the SEC might impose a watered-down fiduciary standard on all advice givers, which would be a net competitive loss for RIAs who operate under a ’40 Act fiduciary standard.
In a separate interview later with AdvisorOne, Nally said a watered-down standard could “disarm RIAs,” since brokers could say “We’re fiduciaries, too, except for these 900 disclosures in six-point type.” He said that Mary Schapiro’s SEC has “bigger fish to fry” than a fiduciary standard, notably on money-market funds, and that the Dodd-Frank Act doesn’t require the SEC to impose such a standard, just conduct a study on the fiduciary standard.
However, Nally (left) argued that “we don’t need more regulation; we need enforcement of existing regulations,” and returned to a theme he voiced in the opening general session of the conference: that much of the regulation stemming from the financial crisis, notably Dodd-Frank, does not address the underlying causes of the financial crisis.
He acknowledged that most investors are not aware of whether their ‘advisor’ has a fiduciary obligation to their clients or not, but cited research that when investors are presented with a definition of fiduciary and are given a choice, they overwhelmingly choose a fiduciary relationship. Nally called for a focus on consumer education, but also argued that while “we’re all for better investor protection, we can’t afford another layer” of expensive and expansive regulation “that will choke small businesses.”
Nally also presented several business opportunities for advisors, particularly among Gen X and Gen Y investors and among women, and called on the advisors in the audience to embrace younger advisors to serve younger investors, all consistent themes of his since being named to succeed Tom Bradley as president of TDAI in February. He argued that the wirehouses are not focused on the younger generation of investors or of advisors, preferring instead older, bigger producers, and that RIAs could steal a march on Gen X and Y investors, who will control $28 trillion in assets within a decade.
TD Ameritrade CEO Fred Tomczyk spoke in the general session as well in a “fireside chat” Q&A format with Nally, and the two men later took questions from attendees. Tomczyk reiterated the firm’s commitment to the RIA channel, calling growth among advisors a “secular trend” and the “fastest-growing channel in wealth management. We expect that to continue.”
When asked in a separate interview to expand on his characterization of RIAs, Tomczyk said that it was based on the fundamentals of the advice business, including the fact that after a certain amount of experience, “most advisors want to get off the commission treadmill,” and that breakaway brokers decide to explore independence “often when some disturbing event occurs” at their broker-dealer, such as on compensation.
On the macroeconomic front, Tomczyk was cautiously optimistic, and that even on the fiscal cliff, “once we’re past the election, they’ll get their act together” in Washington and begin to solve those fiscal issues. While warning that “If we let it go four more years, we’ve got much deeper problems,” Tomczyk is confident that either of the presidential candidates will act as “pragmatic problem solvers.”