More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- 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 Massachusetts Securities Division is seeking comment on whether to require criminal background checks for advisors registering in the state.
The request for comment, issued by Willam Galvin, Secretary of the Commonwealth of Massachusetts, said the state’s securities division “believes that it is in the public interest and for the protection of investors to conduct criminal background checks of those individuals seeking IAR registration in order to ensure that the applicant is not subject to a statutory disqualification and has truthfully and accurately disclosed any criminal background required on Form U-4.”
Comments are due May 15.
Galvin noted that the division’s Registrations, Inspections, Compliance and Examinations Section was recently granted access to utilize the Massachusetts “iCORI system,” an electronic criminal history database, in order to conduct these reviews.
Specifically, the division is proposing and requesting comment on amendments that would 1) require that those seeking Massachusetts investment advisor representative registration file as part of their application a Criminal Offender Record Information (CORI) Acknowledgement Form; 2) update filing requirements with respect to Form ADV; and 3) update certain citations and references to forms to address changes that have occurred over time.
Nancy Lininger, owner of the broker-dealer and advisor consultancy firm The Consortium, told AdvisorOne that while she’s not aware of any other state that requires criminal background checks, she’s for the procedure. “A rep is ‘supposed’ to be forthcoming on the U4, but bad boys may not belly up to the bar,” she says. “Yes, falsifying the U4 is subject to disqualification,” but Massachusetts’ plan would give the state a “method to verify.”
The Massachusetts Securities Division also notes that the CRD system is not capable of accepting the CORI form as part of the electronic submission process, so the state is also proposing to amend the regulation to clarify that the form must be filed directly with the division.
Lininger notes that mailing the CORI form to Massachusetts “slows down the process,” therefore it “may be a good software upgrade for IARD/CRD to consider” accepting state-specific forms electronically.
Read 7 Tips to Avoid SEC Compliance Audits When Marketing on AdvisorOne.