More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- 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.
The bill that industry trade groups feared could stop the Securities and Exchange Commission and Department of Labor’s fiduciary rules in their tracks is coming up for a Tuesday vote on the House floor — and at least one industry official expects it to pass.
The Retail Investor Protection Act, H.R. 2374, introduced by Rep. Ann Wagner, R-Mo., passed the House Financial Services Committee by a 44-13 vote in June and would require that the DOL wait to repropose its fiduciary rule until 60 days after the SEC issues its fiduciary proposal under Section 913 of Dodd-Frank.
Wagner’s legislation may not die in the Senate, said the official, who asked for anonymity, “especially if it gets strong bi-partisan support in the House.”
As Wagner said in her Sunday video message, her bill would “prohibit the DOL from issuing any new rules unless the SEC acts first,” and require the SEC “to perform some common-sense due diligence to determine whether any new rules are necessary.”
Said Wagner: “When federal agencies overreach, as they have in this case, it’s the responsibility of Congress to intervene and stand up for hardworking American families who ultimately pay the price for misguided regulations."
Wagner said that the SEC and DOL fiduciary rules would “likely increase the cost of doing business for Main Street financial professionals and cut off access to advice to low- and moderate-income families.”
The Financial Planning Coalition sent a letter Monday to all members of Congress stating that H.R. 2374 “is an investor protection bill in name only, [and] would prevent [the SEC and DOL] from engaging in rulemaking crucial to investor protection and would leave American investors more vulnerable to potential abuses.”
The coalition – composed of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors — said that it “views H.R. 2374 as a ‘back-door’ attempt to undermine investor protection provisions in Dodd-Frank and to prevent the SEC and DOL from proceeding with investor protection rulemakings consistent with appropriate cost-benefit analyses and routine interagency coordination.”
Dodd-Frank authorized the SEC to establish a uniform fiduciary standard of conduct for both broker-dealers and investment advisors, the coalition said, and the passage of H.R. 2374 “would substantially impede or completely prevent the SEC from proceeding with a congressionally authorized and long-needed rulemaking that would allow all investors to receive investment advice that is based on their best interests.”
SEC Chairwoman Mary Jo White is against the bill. She told House Financial Services Committee Chairman Job Hensarling, R-Texas, and ranking member Maxine Waters, D-Calif., in a June 18 letter that Wagner’s bill places “new restrictions on the commission’s authority that would … make it difficult for the commission to adopt such a [fiduciary] rule should it determine to do so.”
Section 913 of the Dodd-Frank Act, White told the lawmakers, “added new express authority for the commission to adopt a uniform fiduciary standard of conduct and to consider other potential options for the harmonization of the regulation of broker-dealers and investment advisers.” Although there are differing views on this issue, she said, “many investor advocates and industry participants support the establishment of a uniform fiduciary standard of conduct.”
Phyllis Borzi, assistant secretary of Labor for the Employee Benefits Security Administration, said in early September that the planned October release of DOL’s rule to amend the definition of fiduciary under the Employee Retirement Income Security Act would suffer yet another delay. Release of the revised plan won’t come in October “because we are not finished,” Borzi told attendees at the Financial Services Institute’s advisor conference.
Check out Industry Groups Fear Wagner Bill Will Stop SEC, DOL Fiduciary Rules in Their Tracks on ThinkAdvisor.