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.
- 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.
Comments made by Richard Ketchum, CEO of the Financial Industry Regulatory Authority, to The Wall Street Journal Thursday that FINRA has “done the Sisyphus climb” to be given authority over investment advisors, and that FINRA doesn’t “perceive any likelihood that [such SRO attempts] would be successful” seemed to signal a new declaration of defeat by Ketchum.
But industry officials opine that Ketchum was merely addressing the lack of support in the current Congress for FINRA to become the self-regulatory organization for advisors, and that FINRA will indeed assess Congress’ appetite for such support in future legislative sessions.
Industry watchers keyed on Ketchum’s comment in the WSJ article that FINRA isn’t pursuing being the SRO for advisors “at the present time.”
“I think most folks watching this [SRO] issue would say it’s dead in this Congress,” says Duane Thompson, senior policy analyst at fi360. “Ketchum’s qualifying statement, ‘at the present time,’ suggests that the time may not be ripe for an SRO bill to advance this year in Congress, but that in future legislative sessions FINRA will continue to closely monitor the mood of Congress and its appetite for a new advisor SRO.”
Neil Simon, vice president for government relations at the Investment Adviser Association, agrees. “By stating that FINRA is not pursuing efforts to gain authority over advisors ‘at the present time,’ it is evident that FINRA has not abandoned its long-sought goal of extending its regulatory reach to advisors.”
Although FINRA may not be “actively lobbying on Capitol Hill right now,” Simon adds, the self regulator “is in for the long haul and it’s only a matter of time before they’ll be back.”
Ketchum told the Journal that Congress should provide the SEC with the resources necessary to boost advisor exams. The SEC has said it now can examine investment advisory firms once every 10 years on average. Ketchum told the Journal that scant oversight "creates issues from the standpoint of everything from classic Ponzi schemes to abuse."
Chris Paulitz, senior vice president of membership and marketing at the Financial Services Institute, adds that “as we have said for two years, Rick is right, and there is no political consensus on how to allocate greater resources towards increased investment advisor examinations.”
SEC Chairwoman Mary Jo White said in late March that there was “a crying need” for more resources to help the agency boost its examination of the nation’s investment advisors, and the agency has asked Congress for more money to do so.