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.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Industry officials say a discussion draft introduced Thursday by Rep. Ann Wagner, R-Mo., that was designed to stymie efforts by the Securities and Exchange Commission and Department of Labor to move forward in crafting their fiduciary rules will prove to be of little consequence.
“If the Committee was serious about passing this bill, which will die in the Senate if it passes the House, it would [have] invite[d] the SEC to testify,” says Duane Thompson (right), senior policy analyst at fi360.
Rather, Thompson says Wagner introduced her draft as a reminder to the SEC “about the importance of a cost-benefit analysis," which the commission is already undertaking.
Neil Simon, vice president for government relations at the Investment Adviser Association in Washington, agrees that “as currently drafted, I don’t think the bill would have a lot of consequence.”
In introducing the discussion draft at a hearing titled "Legislative Proposals to Relieve the Red Tape Burden on Investors and Job Creators," Wagner stressed that it was “a discussion draft,” and said that the draft was intended to address “one of the biggest issues facing retail investors today, the fiduciary issue. What we have is the SEC and DOL heading toward massive rulemakings, changing the way American investors choose investments—and not necessarily for the better.”
The draft, which both Simon and Thompson agree garnered little attention during the hearing held by the House Financial Services Capital Markets Subcommittee, 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
—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.
The requirement that the SEC coordinate with other government agencies, meaning the DOL, before issuing its fiduciary rule is yet “another shot over the bow” at DOL’s fiduciary rulemaking process, Thompson says.
“Unlike the bipartisan concerns expressed on slowing down the DOL’s fiduciary proposal elsewhere in Congress, there were absolutely no comments from the Democrats in this latest round” on Thursday, Thompson notes.
What’s more, the draft will likely fall on deaf ears at DOL, as the House Capital Markets Subcommittee has no legislative authority over DOL or the Employee Retirement Income Security Act (ERISA).
As David Tittsworth, executive director of the Investment Adviser Association, notes, Wagner's draft, as it stands now, would not be referred to the committee of jurisdiction, which is the Senate Health, Education, Labor and Pensions (HELP) Committee.
That could change if Wagner “revised the bill and had direct references to DOL," Tittsworth says. “It’s certainly not rare for committees to draft legislation to try to avoid referrals to other committees, and Wagner’s current draft reflects that approach."
Indeed, Mercer Bullard, founder of Fund Democracy and associate professor at the University of Mississippi School of Law, told members of the subcommittee during his Thursday testimony that the provision requiring more SEC collaboration with federal agencies “appears to reflect an ultimate goal of preventing the Department of Labor from moving forward with a fiduciary proposal that may impose more stringent requirements than SEC rules impose.”
First, Bullard noted, it is “the employee benefits law created by Congress that mandates more stringent requirements for retirement plan investments.”
Second, he stressed, the draft’s provision requesting more SEC collaboration “may reflect concerns regarding the DOL’s initial fiduciary proposal, but the DOL has withdrawn that proposal and indicated that it plans to issue a substantially revised reproposal in a matter of months.”
Said Bullard: “Before acting on the DOL’s new proposal, Congress should at least determine what the DOL is proposing.”