More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- 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.
Most of us reflect back over the past year (or longer) during the holidays for a couple of reasons. Yes, with the New Year looming, it seems like a good time to take stock of what we’ve done—and haven’t done—during the past 12 months. But also, reconnecting with family and friends, and the holidays themselves, remind us of such gatherings in the past, and how much things have changed in the intervening years, both with us and in the world around us.
Looking back over the past year in the independent advisory world reveals that sometimes the most important events are those that didn’t happen. Here, then, is my list of key non-events for advisors in 2013:
- The SEC did not create a fiduciary standard for brokers, nor did it “harmonize” regulations for brokers and RIAs. While the same could be said of every year since the Dodd-Frank Act was signed into law in 2010, this year seems particularly notable, due to the appointment of new SEC Chairman Mary Jo White and her initial bluster about quickly moving the re-regulations along. Despite having spent nearly a decade as the United States Attorney New York, prosecuting gangsters, terrorists and wayward financiers, Ms. White appears to have been unprepared for the securities industry’s resistance to an RIA-like standard for brokers.
SIFMA’s current tactic of focusing the debate on the costs of a broker fiduciary duty—and tying any SEC action to the DOL’s expansion of the ERISA fiduciary standard—appears to have put the brakes on the SEC’s deliberations. At the same time, the increasing likelihood of a separate standard for brokers (which could have more of a marketing benefit than an investor benefit) has dampened the enthusiasm of many RIAs for any change at all. With Mary Jo White’s failure to have a demonstrable impact on the SEC agenda, and waning enthusiasm from all parties, the reregulation of brokers seems a lot less likely today than it did last year at this time.
- Equally as telling as Mary Jo White’s failure to push the Dodd Frank agenda is the Department of Labor’s Phyllis Borzi inability to keep her promise that “a fiduciary rule would see the light of day this year.” Bolstered by the reelection of the Obama Administration (which secured her continued employment as Assistant Secretary for Employee Benefits Security), Ms. Borzi was optimistic about expanding the ERISA fiduciary standard to brokers who “advise” companies on their selection of retirement plans. But the securities industry’s opposition was equally stiff on the Labor front as well, casting serious doubt on either DOL or SEC altering their respective fiduciary standards.
- FINRA did not take over the regulation of RIAs. Earlier in the year, it looked as if the biggest (presumably) unintended consequence of Dodd-Frank Section 913 could be the SEC’s handoff of RIA regulation to FINRA. As I’ve written before, the securities industry SRO has been trying to regulate independent advisors out of business at least since 1985 (when it was known as the National Association of Securities Dealers, or NASD); or perhaps more accurately, regulate them into large brokerage firms. Said takeover would have spelled the death knell for independent firms as we know them today. Not only did FINRA fail in its attempted coup, but it did so with such a lack of support inside and outside of Congress that it probably won’t try again in this re-regulation environment. But never say never, especially when it comes to FINRA.
- The CFP Board fails to fairly oversee the use of the “fee-only” description by CFPs. One of the leading alternatives to FINRA as regulator of independent advisors (at least those who are financial planners), the Board inflicted serious damage to its credibility through a series of uneven disciplinary actions involving it’ own board members, prominent CFPs and thousands of brokers posting on the Board’s own website. The extent of the damage is hard to assess, but it seems fair to say that support for the Board as a regulator has waned dramatically.
On a macro scale, a confluence of non-events led to the biggest surprise of 2013: The EU didn’t collapse, despite the Cypriots’ best efforts; the US government didn’t collapse or default, though it did shut down from Oct. 1-16; and the most costly parts of Obamacare were delayed at least until well into the new year. These non-events combined with a non-change in interest rates (the prime rate is 3.25% today, the same as it was a year ago) to push the stock market to new highs: the DJIA to 15,884, up 21.2% year to date; and the S&P 500 to 1,426—up 25% YTD.
No factor has a greater impact of the finances of independent advisory firms than the stock market. While the survey numbers aren’t in yet, most firms will undoubtedly have reached new all-time financial highs in this banner year of 2013. Happy Holidays