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.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
Once again, the reader named PPott raised a number of important questions in response to my Dec. 13 blog “Why We Need a Financial Advisory Profession,” that get to the heart of when and how a job—such as delivering financial advice or products—becomes a “profession.”
First on his or her list is a point I meant to address in my last blog, but just ran out of space: “I am not certain that professions have to be exclusionary; all that they really need are to have requirements.”
Well, yes—and no. That is, yes, professions certainly need to have requirements (as enumerated in my earlier blog; starting with a duty to put the interests of their clients/patients/flock first, ahead of their own). Yet those very requirements make professions, in practice, exclusionary: people who decline to adhere to their requirements are excluded from a profession, or are summarily kicked out, should they at some point fail to meet its standards.
To my mind, its eagerness to be as “inclusionary” as possible has historically been one of the stumbling blocks for the CFP Board in its attempt to create a financial planning profession. A profession has to be willing to clearly state “this is what we stand for” (including putting the clients’ interests first), and to exclude people who do not meet those standards.
As part of the enforcement of their inclusionary/exclusionary process, professions use government-sanctioned licensing, which PPott also addresses: “Many of the occupations which you mention require something which is referred to as a ‘state license’… … [including] requirements which a person has to meet and then grants them a license to do the job.” Just so.
When the CFP Board was formed in 1985, by the IAFP and ICFP (the two forerunners of the Financial Planning Association), the fledgling NAPFA and the College for Financial Planning (which owned the CFP “mark”), the various representatives involved deemed it more expedient to create national certification rather than seek state licensing. This was in part due to their fear of a challenge to their sole “ownership” of the CFP mark. It is a decision, however prudent, that has hampered the creation of a financial planning profession to this day.
Finally, PPott raises the much-used critique that existing professions aren’t so great anyway: “The legal system is a mess, and is hardly something that we should hold up as an example of something that works well. Our medical system is not the envy of anyone, and yet you hold that up as something revered. God bless our accountants: at least they present income statements which can be believed and relied upon (sarcastically said in case you missed it).”
Let’s be clear: no profession is without its challenges, and none of them is perfect. After all, most of them involve people. The question we should be asking is whether the clients or patients of these professionals would be better off or worse off without the professional standards which are in place at present. Put another way, would retail investors be better off if their “advisors” were held to similar standards?
Seems to me that the vast majority of the public currently believes their financial advisors already are required to meet such standards.