More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
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.”