More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- 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 House Financial Services Capital Markets Subcommittee plans to release a discussion draft next week of a bill that would require the Securities and Exchange Commission and the Department of Labor to collaborate on their fiduciary rules.
But SEC Chairwoman Mary Jo White (left) signaled in comments before the full committee Thursday that while the agencies have been collaborating on their rules, each would ultimately make its own decisions.
AdvisorOne obtained a copy of the discussion draft, written by Rep. Ann Wagner, R-Mo., on Thursday. It would amend Section 913 of the Dodd-Frank Act by:
—Mandating that the SEC coordinate with other federal agencies before issuing any broker-dealer fiduciary rule;
—Requiring the SEC, before issuing any rule, to find that the new rule will remedy investor confusion; and
—Requiring the SEC, before issuing any final rule, to find that the status quo demonstrates economic harm to investors and that the new rule will remedy this economic harm.
When asked during the full committee hearing on Thursday if she was concerned whether DOL’s “fast track” approach in getting a redraft of its fiduciary proposal out in July would “undermine” the agency’s rule proposal, White told members of the House Financial Services Committee that staff at the SEC and the DOL had been “in frequent contact” on their fiduciary rules, and that the agency would “make certain” that DOL was made aware of how the SEC’s rule differs from DOL’s. However, she noted that the SEC and DOL were “two different agencies” and that the DOL would “ultimately make its own independent decision” regarding its fiduciary rule.
White told lawmakers that no decision to move forward with the SEC’s rulemaking would be made until the agency’s current request for public input on the costs and benefits of a rule ends in July, and the agency reviews the comments.
“It seems as though the SEC and DOL are in a race” to create fiduciary rules, said Rep. Bill Huizenga, R-Mich. “But one of those [agencies] shouldn’t be in the race,” he said, noting his concern about IRAs being included in the DOL’s fiduciary rule proposal.
Phyllis Borzi, assistant secretary of Labor for the Employee Benefits Security Administration, has repeatedly said that the SEC and DOL work under two very different statutes, and that collaboration on the two agency’s fiduciary rules can only go so far.
Borzi told AdvisorOne in a recent interview that EBSA’s ultimate goal in its fiduciary rule was “to take everything we have learned [from the comments] and—acting in coordination with the SEC so that compliance with one regulatory regime doesn’t put you out of compliance with the other—issue a final rule that makes sense and protects the trillions of dollars in retirement savings that workers and families are counting on.”
As she told the House Appropriations Committee a week before, the budget boost would help the agency fulfill one of its top priorities: to add 250 examiners for advisors.
In comments to reporters after her testimony on whether a self-regulatory organization was needed to help the agency boost the frequency of advisor exams, White stated that the agency does not take a position on the need for an SRO—which would require legislation. What’s needed, White said, “is greater exam coverage” of advisors.
Rep. Spencer Bachus, the former Financial Services chairman who was unsuccessful in getting his SRO bill through committee last year, agreed with White that “more frequent exams” were needed for advisors, which he called a “huge area.”
Bachus encouraged White to fight to see that there was bipartisan support for boosting the SEC’s budget.
White also testified a day before the House was scheduled to vote on H.R. 1062, legislation requiring the SEC to adhere to even stricter cost-benefit analysis requirements.
White told lawmakers that while she’s “a firm supporter of economic analysis, I have concerns about this bill.” Not only would it add additional requirements but it would put the agency’s rules “under constant challenge.”
Twelve public interest groups—including the North American Securities Administrators Association, CalPERS and the Consumer Federation of America—issued a joint letter Thursday saying the bill subjects the SEC to “massive new cost-benefit analysis requirements (on top of the plentiful requirements that already apply),” and that HR 1062 “would invite a flood of litigation and effectively give Wall Street veto power over rules it dislikes.”
Read FSI Backs Bill Requiring SEC Cost-Benefit Analysis on AdvisorOne.