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.
- 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.
Those who tend toward the conservative side of the political spectrum are often forced to defend themselves against charges that they are “against” health care because they don’t approve of government’s involvement. Ditto with education; they don’t like a centralized bureaucracy in Washington that they say takes attention and resources away from the classroom. There’s something to be said for their defense, and recent responses to the fiduciary question indicate that on this issue, at least, independent broker-dealers lean decidedly right.
It’s not that they’re against a fiduciary standard (what responsible advisor in their right mind would?), it’s that the Department of Labor’s definition and requirements will add an unsustainable cost burden to what the vast majority of advisors already do.
“We asked the reps that attended our national conference if they already consider themselves to act according to a fiduciary standard,” Cambridge Investment Research CEO Eric Schwartz said at the 2013 Broker-Dealers of the Year roundtable discussion in Chicago. “Of the 900 people in the room, 100% of the hands went up.”
An illustration of the effect a fiduciary standard will have on small IRA accountholders unexpectedly presented itself that day. As he was setting up his equipment, our videographer casually remarked that he and his wife recently opened an IRA, seeded with $5,000. He didn’t know if it was a Roth or traditional, and they invested in the same stock his wife’s father has held for years.
While Investors Capital Corp.’s Tim Murphy emphasized it was important that they opened the account, he nonetheless noted, “It’s exactly this type of investor, the one who needs the most help, who will be harmed by the DOL’s rule.”
It’s nothing new, and the Financial Services Institute, whose finance committee Murphy currently chairs, has been making the same argument for years. Forget Borzi, forget investment head honchos; get our videographer in front of Congress to illustrate the actual effects of the regulators’ supposed good intentions. It should be obvious, but as is frequently the case with government involvement, obvious is anything but.