More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- 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.
Hoping to push the Securities and Exchange Commission’s fiduciary rulemaking along, a subcommittee of the agency’s Investor Advisory Committee has drafted a proposal that would put brokers under fiduciary standards that advisors adhere to.
Under the draft proposal, the subcommittee says that a fiduciary duty for investment advice should include, “first and foremost, an enforceable, principles-based obligation to act in the best interest of the customer.”
In approaching this issue, the subcommittee says that the SEC’s goal “should be to eliminate the regulatory gap that allows broker-dealers to offer investment advice without being subject to the same fiduciary duty as other investment advisors but not to eliminate the ability of broker-dealers to offer transaction-specific advice compensated through transaction-based payments.”
The subcommittee adds that “Though it may require both regulatory flexibility to permit the existence of conflicts of interest and some regulatory changes to reduce the most severe conflicts of interest in the broker-dealer business model, the Committee believes that advisory services offered as part of a transaction-based securities business can and should be conducted in a way that is consistent with a fiduciary standard of conduct.”
Barbara Roper, director of consumer protection for the Consumer Federation of America, who chairs the SEC’s Investor as Purchaser Subcommittee that issued the proposal, told ThinkAdvisor that the subcommittee’s hope is that “by weighing in early in the [fiduciary rulemaking] process, we can help to shape the form that commission rulemaking takes.”
However, Roper concedes that a rulemaking won’t occur this year, as the agency still has to “produce an economic analysis” of such a rule “based on the data they’ve collected.”
Said Roper: “We hope the Commission will move forward with a good rule. This issue is a high priority for investors.”
The subcommittee’s proposal was scheduled to come up for a vote at the Investor Advisor Committee’s Oct. 10 meeting, but that has been postponed because of the government shutdown.
While the SEC is not bound by any recommendations of the Investor Advisory Committee, which was created under Section 911 of the Dodd-Frank Act, Section 911 does require the SEC to “review the findings and recommendations of the committee” and “each time the committee submits a finding or recommendation to the commission, promptly issue a public statement assessing the finding or recommendation of the committee; and disclosing the action, if any, the commission intends to take with respect to the finding or recommendation.”