More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- 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.
Recruitment and new financial regulations were on the minds of many participants in a breakout session at SIFMA’s annual meeting in New York this week.
“Financial services is no longer the destination of college graduates,” said Lisa Kidd Hunt, an executive vice president at Charles Schwab. Bad publicity has made it hard to recruit a new crop of advisors, she said.
Schwab is addressing this problem in a couple of ways, according to Hunt. It is partnering with universities in Texas and Virginia to train advisors. It is also hiring interns for summer stints, and then bringing some of those into a three- to five-year investment advisor training program after graduation.
Hunt said that in order to increase the advisor cohort, a process has to be in place to provide new hires with skills.
John Taft, CEO of RBC Wealth Management — USA, freely admitted that not enough was being done either generally or at RBC to bolster advisor ranks. The average age of advisors is 50, he said, and they are being asked about succession plans.
Taft said RBC was now offering promising college graduates two courses in wealth management from which they could move into ready-made jobs.
Kent Christian, president of the financial network at Wells Fargo Advisors, said the firm’s AG Edwards affiliate has an operational training section in which participants follow a curriculum focused on relationship management and teaming. The average age of trainees in the program is 36, he said.
What can the industry do to restore confidence and project a sense of accountability?
“Trust and confidence weigh on everyone,” Hunt said.
Two things were critical to improve this situation, she said. One, to not be in the paper, by which she meant every new scandal further tarnishes the industry’s image. Two, make compliance a top priority, despite the cost.
On a positive note, Taft pointed out that during the financial crisis, clients by and large continued to trust their advisors, even as their confidence in the financial industry plummeted. He said that fiduciaries had an obligation to put clients first, and that advisors should make clients aware of this.
On a similar note, Kim Tillotson Fleming, chairman and CEO of Heffren-Tillotson, said advisors must do a better job articulating their role, and improve their messaging about what they bring to clients.
"Clients want to feel we’re doing something for them, not to them,” Christian said.
The regulatory environment was a big concern of SIFMA panelists.
Hunt said some proposals in the regulatory pipeline would help boost investor confidence. And she echoed Mary Jo White’s comments to the SIFMA audience in which the head of the Securities and Exchange Commission said the agency would follow a policy of zero tolerance for misbehavior, saying this was a good thing.
Taft said a fiduciary standard of care written properly was the way to take the high road; one written badly could be a disaster. Section 913 of the Dodd-Frank Act should be the standard of behavior, he said.
Section 913 would impose the same fiduciary responsibilities on broker-dealers that apply to investment advisors. The SEC has been tasked under Section 913 with developing such a rule.
White said this mandate had a high priority on the agency’s agenda. It was important to have a single standard, she said, so that investors would receive the same quality of advice from both advisors and broker-dealers.
Taft called the DOL’s effort the “worst single proposal,” saying it would take the small saver out of the market. Criticism of the proposal has also swelled on Capitol Hill. In August, 10 Democratic senators urged the White House in a letter to delay the DOL proposal until after the SEC had acted. They worried that the two agencies were working at cross purposes, to the detriment mainly of Main Street investors.
The House of Representatives has passed the Retail Investor Protection Act, which would require the DOL to wait for the SEC to issue its fiduciary rule — and would add several extra steps for the SEC before making the rule. The bill stands little to no chance in the Senate.
White said she had entered discussions with Labor to achieve consistency in rulemaking.
Taft noted the biggest complaint he had heard from advisors was that they spent more and more time on administration. He said that how firms navigate through the onslaught of regulations would be a big differentiator among them.
Firms must have processes in place to do this, he said. They must get input from the field, and rely on teaming and technology.
Christiansen was less exercised by the increasing regulatory burden. He said he assumed a harmonized fiduciary standard would eventually be put in place, and this would be aligned with advisors’ best practices.
Check out No Institution Too Small to Escape Scrutiny, SEC Chief Tells SIFMA on ThinkAdvisor.