More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
March 2014 may will be remembered in the East for the persistence of Old Man Winter. In investment advice it may be remembered as a tipping point of clarity on future fiduciary rulemaking at the Department of Labor (DOL) and the Securities and Exchange Commission (SEC).
The DOL displayed a new energy on rulemaking, which comes directly after the new DOL Secretary, Thomas Perez, met with key members of Congress over the past several months. This is an important development. Meanwhile, the SEC displayed a new caution, limiting itself to merely deciding it will decide whether to proceed. Some recent indications suggest the SEC may pass. The SEC passing on its fiduciary rulemaking, at least for now, may be good for investors.
By passing, the agency could stall an otherwise clear march, some 25 years in the making, of looser and looser regulations, de facto letting brokerage sales appear as fiduciary advice, while clearly not being fiduciary advice.
How did this occur? Until recently, securities "sales" and "advice" were generally separated in federal law. This was a central purpose of the Advisers Act of 1940, where fiduciary principles were clearly reflected in its legislative background. Over time this separation steadily blurred.
A broker today is permitted to suggest he's an investment advisor, while not necessarily being required (in brokerage accounts) to: put clients first, disclose his duties to his BD, and disclose conflicts or most expenses and fees that clients pay.
It is well known that investors can’t distinguish advisors and brokers. What is less well known is that many industry professionals can’t do so either.
In the past two weeks I've spoken on fiduciary topics three times to very different audiences. I spoke to the New York County Lawyers Association on "The Disappearing Fiduciary Standard... the Uncertain Promise of Dodd Frank." In these remarks (you can read them at thefiduciaryinstitute.org), I set out key notions of established fiduciary law, and then principles and practices the SEC appears to be considering for a "new" standard based on its March 2013 release (the SEC notes that the assumptions in that release may not be assumptions actually held by the Commission).
The differences between the "established" and a potential "new" fiduciary standard are not "of degree,” matters of nuance or peripheral to what fiduciary means. The differences are sharp and clear. They reveal two starkly opposed visions of the core of what fiduciary duties are and why they exist.
Whether March proves to be a tipping point of clarity or something else, well, only time will tell.