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.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
This is Richard Ketchum’s second appearance on the IA 25. Read his extended profile from 2011 here. Click here to view the complete list and Special Report schedule for extended profiles for each of the 2013 IA 25 honorees.
It’s no secret that investment advisors are opposed to the Financial Industry Regulatory Authority becoming the self-regulatory organization that steps in to examine them—and, at least for the near term, it looks as though their wish has been granted.
As Richard Ketchum, FINRA’s CEO, said in a recent email exchange with IA, “given the lack of consensus on the Hill” regarding an SRO for advisors, FINRA “is not pursuing legislation in either the House or Senate at this time.”
While Ketchum said he would support allowing the Securities and Exchange Commission to assess user fees to boost advisor exams “if it becomes an achievable solution,” he doesn’t see a consensus among lawmakers to move forward with that option either.
Rep. Maxine Waters, D-Calif., ranking member on the House Financial Services Committee, re-introduced her user fees bill in late April.
However, Ketchum told IA that FINRA “continues to believe that the current levels of investment advisor oversight and examinations are unacceptable and a risk to investors, and that this significant gap in investor protection needs to be addressed.” It’s undeniable, he said in his email, “that proper and timely oversight of investment advisors needs to be put in place sooner rather than later.”
Industry officials believe FINRA’s fight to become advisors’ SRO has merely been put on the backburner for now.
But advisors and broker-dealers can count on FINRA moving ahead with other initiatives this year, particularly conflict issues, Ketchum said, such as broker compensation. He noted in mid-April that FINRA is now reviewing the comments it received on its controversial proposal under Regulatory Notice 13-02 to require that brokers’ recruitment compensation be disclosed when they switch firms, and “will soon decide on how to proceed.”
Other concerns for FINRA include “complex products from a suitability, sales practice and disclosure standpoint.” Ketchum said during his mid-April speech at the SEC’s National Compliance Outreach Program for Broker-Dealers that “heightened supervision” is still necessary when it comes to complex products.
He noted that broker-dealers can expect the regulator to provide by early summer a best practices guide regarding conflicts of interest, and also told BDs that the next step in FINRA’s “continuing efforts to integrate and merge surveillance with exams” is to increase the amount of data that FINRA gets from its member firms. Said Ketchum: “We are looking to download significant transactional information” from member firms.
FINRA is also closely monitoring the sales of closed-end funds and private REITs, Ketchum said, “which may be attractive because they offer high interest payments [that] investors may not understand often exceed cash flow and is paid partly out of principle.”
Other high priority areas include monitoring closely the sales and marketing of private placements, Ketchum said. “We also remain concerned with fixed-income products as investors move to concentrated positions of longer-duration or high-yield fixed income products in an attempt to capture higher interest rates.”