More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Just as the Securities and Exchange Commission’s budget could face a $108 million drop if sequestration cuts kick in on Friday, Republicans on the House Financial Services Committee criticized the agency Tuesday for overspending on what they called “misplaced priorities,” including moving ahead with a rule to put brokers under a fiduciary mandate.
While not specifically citing budget cuts that the SEC should face, House Republicans lambasted the agency in its 19-page document, which detailed the committee’s views and estimates on the federal government’s budget for fiscal year 2014, for “repeatedly failing to fulfill any part of its mission,” in the run-up to the financial crisis and its aftermath.
House Republicans also revisited their complaints that the agency was to blame for the bailout of Bear Stearns and the collapse of Lehman Brothers, and that the agency was “missing in action” in not catching the Bernie Madoff and Allen Stanford Ponzi schemes.
Rep. Maxine Waters, D-Calif., ranking member on the committee, said that given that President Barack Obama has yet to unveil a budget, the committee’s efforts to discuss its budget objectives are “premature and will leave unaddressed the most pressing budget challenge that face this Congress and the nation: the looming threat of sequestration” that will likely take place Friday.
The White House’s Office of Management and Budget estimates the SEC’s $1.32 billion annual budget could be chopped by $108 million if sequestration takes place.
Just as SEC Chairwoman Elisse Walter has vowed to push the agency’s fiduciary rulemaking forward this year, House Republicans are renewing their efforts to stop the agency in its tracks.
As stated in the 19-page document, House Republicans state that the SEC has been debating since 2011 whether to impose a fiduciary-like standard of care for broker-dealers, even though former SEC Commissioners Kathleen Casey and Troy Paredes said in January 2011 that the SEC staff had failed “to adequately justify its recommendation that the Commission embark on fundamentally changing the regulatory regime for broker-dealers and investment advisers.”
House Republicans also cite in the document comments made by SEC Commissioner Daniel Gallagher last October, in which he said that any rulemaking to change the broker-dealer regulatory regime, “[m]ust . . . be supported by Commission findings that such rules are necessary, as well as a detailed understanding and analysis of the economic consequences of such rules.”
Furthermore, the House Republicans stated that it’s been a year since the SEC said it would be issuing a request for data to help the agency more fully understand the potential costs associated with “altering the broker-dealer standard of care,” and to date no such request has been made. “In the absence of such economic and empirical data, the SEC should not proceed with this discretionary rulemaking,” the House Republicans said.
But with Mary Jo White likely replacing Walter soon as the new chairwoman, progress on the fiduciary rule remains unclear. A Senate aide told AdvisorOne late Monday that the Senate Banking Committee is “tentatively” looking at the week of March 11 for a confirmation hearing with White, Obama’s choice as the next SEC chief.
Once the Senate Banking Committee has its hearing, the full Senate can confirm her the very next day, or a day later, so White could replace Walter by mid-March.
But as David Tittsworth told AdvisorOne in a recent interview, the question remains as to whether there are three votes to issue the request for public comment. "Those three votes could come from the current group of commissioners in the near future," he said. "If the request is not issued before White takes over the chairmanship, there will be a bit of a time lag in order to allow her to come up to speed on this and many other pending issues."