More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
I’ve heard military service during wartime described as long periods of interminable boredom broken up by moments of sheer terror. At the risk of possibly overstating the case, it seems to me that the drawn-out debate over the SEC’s implementation of a fiduciary standard for brokers and “harmonizing” financial advisor regulation (as directed by Dodd-Frank’s Section 913) might well bear a similar description.
Apparently, I’m not alone. Here’s what Knut Rostad, founder and president of the Institute for the Fiduciary Standard, recently wrote about the reasoning behind his newest agenda: “While the regulatory process seems never ending, the importance of current developments should not be overlooked. The fiduciary standard is at a crossroads in 2013. There is a new SEC. Three of the five commissioners have not expressed themselves, and the SEC is mulling revising the very meaning of advice. Concurrently, the DOL is preparing to re-propose modernizing what fiduciary means under ERISA… …The Institute for the Fiduciary Standard today announced its Fiduciary September initiatives, stressing the ‘enormous responsibility’ on the Securities & Exchange Commission (SEC) as it considers revising the meaning of [retail] ‘advice’ in federal securities law.” (See news story by Melanie Waddell on the Institute’s Fiduciary September plans, and Mr. Rostad’s latest blog for AdvisorOne on the current state of a fiduciary standard for all advice givers.)
It seems that “Fiduciary September” is more than just a recap of where we currently stand on the reregulation of brokers and advisors. With new leadership at the top of the SEC, lots of questions remain unanswered about the Commission’s allegedly pending new regulations. Judging by the SEC’s recent request for information on the implications of a fiduciary standard for brokers, many interested parties fear that at least the Commission’s staffers are leaning in a troubling direction (see my ThinkAdvisor blog from July 17: “Debunking Time”).
But Rostad believes there’s still time to influence the SEC’s decision making: “While the direction of the new Commission leadership is uncertain and the DOL re-proposal is not yet submitted, the tactics and the tone of the industry’s opposition is well-known and deserve greater attention,” he wrote yesterday in his Think Advisor blog. “In effect, the industry has ‘surrounded’ the offices of regulators and members of Congress and declared war on fiduciary duties… …Fiduciary September includes events and actions aimed to highlight the importance of fiduciary principles in preserving trust and confidence in our capital markets.”
One of the Institute’s main focuses during Fiduciary September, Knut told me, is to counteract the securities industry’s arguments against being required to put their clients’ interests first, as is mandated by Dodd-Frank, and as RIAs currently do. “The Institute will also offer scrutiny of the basic implausibility of the brokerage industry argument against fiduciary duties,” he wrote. “These assertions link putting investors first with untold damages to investors: cost increases and product inaccessibility that inevitably will lead to hordes of small investors abandoned by brokers to fend for themselves.”
As Rostad points out in his blog, it’s a curious thing for SIFMA to suggest that these dire consequences will result from putting clients first, when they have been maintaining for years that brokers do, in fact, put their clients first. How are retail investors to understand this contradiction?
With the events of Fiduciary September, Rostad and the other members of the Institute’s board hope to refocus the SEC and the mass media on the Dodd-Frank goal of establishing protections for brokerage clients that are “at least as high” as the 40s Act standard for RIAs. It’s an important mission; considering the recent changes at the Commission—and the potentially adverse consequences to independent advisors should the brokerage industry prevail.