More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Securities and Exchange Commission plans to issue a “concept release,” which will also likely include a request for information, in the first quarter regarding its rule to put brokers under a fiduciary mandate, Ken Bentsen, executive vice president of Public Policy and Advocacy for the Securities Industry and Financial Markets Association, said Wednesday.
Bentsen, speaking at SIFMA’s state of the industry event in New York, said that SEC staff has been “working hard” and is “close to getting a concept release out the door, with support” from SEC Chairwoman Elisse Walter. Specifically, the SEC wants more feedback on its cost-benefit analysis on its fiduciary rule.
Bentsen will become acting president and CEO when Tim Ryan departs on Feb. 23.
The SEC and Department of Labor’s fiduciary rules were big parts of the discussion, as was money-market fund reform and the Volcker rule—which SIFMA expects to be finalized by the end of the first quarter.
Chet Helck (right), SIFMA board chairman and the CEO of Raymond James Financial’s Global Private Client Group, said during the briefing that SIFMA is “hopeful” the fiduciary rulemaking will be a priority this year. Helck said that SIFMA supports requiring “all providers of similar services to be held to the same high fiduciary standards,” noting, however, that “It’s a very difficult and very complex equation to solve.”
This last SEC request for comment has been a year in the making, and former SEC Chairwoman Mary Schapiro told AdvisorOne last September that she was “ready to go” on releasing it so that the public could help inform a “more detailed” cost-benefit analysis on the agency’s fiduciary rule.
David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington, told AdvisorOne in a separate interview that the request for information will likely also “discuss potential regulatory alternatives, so it may give us some idea of the rule the Commission may propose down the line.”
The challenge, however, is that the request for information will require the support of at least three of the four sitting SEC commissioners.
The Department of Labor’s reproposed rule to amend the definition of fiduciary under ERISA will likely come late in the first quarter or early in the second, Bentsen predicted, noting that SIFMA is still “very concerned” about the reproposal.
The DOL’s previous fiduciary proposal was “contrary to where Congress wanted the SEC to go in Section 913 of Dodd-Frank,” Bentsen said. Section 913 “makes it clear that you could have dual models under a uniform standard of care,” however, “the way the DOL is moving would eliminate the ability to have a commission-based model for ERISA accounts.”
As to money-market fund reform, the Financial Stability Oversight Council (FSOC) said Wednesday that it has extended the comment period on its proposed reforms to Feb. 15, at the request of SEC Chairwoman Elisse Walter.
In its comment letter to FSOC, SIFMA suggested that the SEC explore structuring a proposed redemption gate, accompanied by a redemption fee or “liquidity fee.” The gate, when triggered, SIFMA says, “would prohibit investors from redeeming and provide a period of time for a fund to restore its market-based NAV and liquidity.”
As to a floating NAV, SIFMA said that issues related to tax, accounting, brokerage account suitability and other key issues relating to a floating NAV must be addressed “if regulators pursue that reform.”