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.
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
As the Securities and Exchange Commission continues to gather data for a fiduciary rule, Bernie Clark, executive vice president of Schwab Advisor Services, says Schwab’s mission is to ensure that a fiduciary rule is not coupled with harmonization of broker and advisor rules.
“We are trying to delink those concepts”—coupling fiduciary duty and harmonization in one rule, Clark told AdvisorOne during a Wednesday interview in Washington. “The sense we have is that the SEC is linking the two,” and “that’s where the breakdown has occurred.”
Indeed, in releasing the March 1 request for information on the costs and benefits of a uniform fiduciary rule for brokers and advisors, SEC Commissioner Elisse Walter (then chairwoman) said that the comments would also help the agency in its “ongoing consideration of alternative standards of conduct for certain broker-dealers and investment advisers, as well as potential harmonization of other aspects of regulation in this area.”
But harmonization of advisor and broker rules brings with it a “harsh reality,” Clark says: the principals-based RIA model—which currently adheres to about 40 rules—would be forced to comply with the nearly “800 broker-dealer rules.” This, Clark says, would essentially “topple” the RIA model, and drive a lot of the smaller RIAs out of business.
The Securities Industry and Financial Markets Association along with the broker-dealer industry, Clark says, are “very supportive of harmonization because the migration of assets away from those models into the independent space has been great.” If the SEC harmonizes broker and advisor rules “then you are drawing the RIA back into the more traditional model, which doesn’t serve the RIA well or their clients.”
But Clark—who was in Washington participating in the Investment Adviser Association's Lobbying Day—says one bright spot is that members of Congress agree that the SEC should not mesh fiduciary duty and harmonization into one rule.
After meeting with House Financial Services Chairman Jeb Hensarling, R-Texas, House Capital Markets subcommittee chairman Scott Garrett, R-N.J., and the ranking member on the Senate Banking Committee, Mike Crapo, R-Idaho, Clark said each of them “believe that RIAs and broker-dealers are fundamentally two different business” models, and that “harmonization and the fiduciary standard should be separate and distinct.”
As the SEC’s comment period winds down at the end of this month, Clark said that Schwab plans to include in its comment a survey of advisors who custody assets with Schwab and their views on the harmful consequences they see in harmonizing advisor and broker rules.
Read Bob Clark's Historic Moment as Planner Groups Voice Clear Support for Fiduciary Standard on AdvisorOne.