More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
“The CFP Board’s Kevin Keller said he questioned the premise of the title,” Skip Schweiss began when reflecting on his regulatory panel at TD Ameritrade’s annual conference in San Diego last week. “We billed the session as 2013 being a year when a regulatory tsunami hits. Keller said the tsunami hit in 2010, and now we're stuck in the mud left in its aftermath.”
Noting that regulatory issues seem to be “moving really slowly,” Schweiss, the company’s Washington advocacy director, told AdvisorOne on Wednesday that one of the main issues, the fiduciary standard, “really has two heads, the SEC’s rulemaking and the ERISA fiduciary rule from the Department of Labor.”
“We don’t see much from the SEC on this front due to turnover in the commission’s staff after the election,” he said. “But as Keller said, we’ve been staring at the SEC for so long we’ve sort of missed as an industry what’s been happening at the DOL. They are planning to re-propose their rule, probably this summer, and that will carve out $5 trillion in IRA assets.”
Schweiss noted that the regulatory environment was relaxed last summer in the run-up to the election, but is now “picking up” once again.
“No one wanted to rock the boat before the election; that is no longer the case,” he added.
As for what the SEC will look like under Mary Jo White, Schweiss demurred, saying it’s too early to tell, but “they have a lot of big issues with which to deal, such as the Volcker Rule and money fund regulation.”
Specifically referring to Dodd-Frank Section 913 that deals with the fiduciary issue, he pointed to the fact that the section required SEC only to study the issue, which it did.
“The commissioners didn’t sign off on the results of the study, even though the staff recommended it,” Schweiss said. "The important wording in Dodd-Frank was that a broker fiduciary rule must be consistent with what advisors have operated under. [Rep.] Barney Frank came along and said (and I’m paraphrasing), ‘Don’t you dare make it the [Investment Company Act of 1940].’”
For this reason, Schweiss believes Congress has given the SEC “a nearly impossible task. It should be no less stringent than the ’40 Act, but not the ’40 Act. That is a serious needle to thread.”
But far from “dying on the vine,” he sees the SEC fiduciary issue remaining in play.
“It will be difficult, and Congress wants a cost/benefit analysis. Also, the commission is 0 for 6 recently when their rules have been challenged in court. But brokers and advisors largely want it. It is not a priority, but still recognized by the commission as important.”
Turning to section 914 and harmonization of rulemaking, Schweiss noted that the SEC inspects advisors roughly once every 12 years, which he said is a problem.
“The SEC had three choices to deal with harmonization,” he explained. “Two involve a self-regulatory body and one involves user fees, but all three have to go through Congress.”
A SRO bill introduced by Rep. Spencer Bachus, R-Ala., was pulled back last summer. Rep. Maxine Waters, D-Calif., introduced a bill on user fees, which Schweiss says will likely move forward, but with so much on their plate, it’s a question of when.
“There is real concern among both parties about another regulation for advisors, who are small-business owners,” he concluded. “We don’t see the foot on the accelerator of 914, which of course doesn’t solve the original problem of advisor examinations.”