More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- 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.
After declaring that 2014 will be the year the Securities and Exchange Commission decides whether to move ahead with a rule to put brokers under a fiduciary mandate, Mary Jo White directed SEC staff to compile a list of “all of the potential options” available to the agency that could be used in drafting a fiduciary rule.
Why? “If the decision were made to impose a uniform fiduciary duty, there are a number of ways to do that,” White told IA in an exclusive interview in mid-April.
White announced in a late March speech that “in order to more fully inform the commission’s decision on this matter,” she had directed SEC staff to compile the list, “including a uniform fiduciary standard for broker-dealers and investment advisors when dealing with retail customers, and other measures that may be more targeted and achievable in the shorter term.”
As it stands now, White told IA that she has gotten “some initial recommendations and analysis from the staff,” to which she has “raised some questions and given some reactions. I’m actively in discussions with the staff on those recommendations and analysis.”
The priority, she continued, “is to get those [staff] recommendations before the commission on what I consider to be a very high priority issue for investors.”
White decides what those recommendations should be, and then the five-member commission considers them.
In her mid-April talk with IA, White said that she’s “driving this [fiduciary] issue because of how important that I think it certainly is.” But she stressed, it’s a “complex” issue. “It’s hard.”
White declined to give a formal deadline on when the agency would decide whether to move forward on a fiduciary rulemaking, stating only that deciding whether to reform the advice regulations governing brokers and advisors “is a priority for 2014.”
When asked by IA if she believes that investors do not understand the difference between a broker and an advisor, White replied: “I think the data certainly shows that, that there is that investor confusion.”
Another “very important aspect” of deciding whether to use its authority under Section 913 of Dodd-Frank is for the commission to determine whether to harmonize the rules for brokers and advisors, which White said would be a separate rule to any fiduciary rulemaking.
Increasing the number of advisor exams is also a “No. 1” issue for White. “You really can’t overstate how pressing the need is to increase the exam coverage of investment advisors,” White said during the interview. “The metrics are pretty stark. We were able to examine 9% of advisors last year; that’s 25% of assets under management.”
Despite being “a lot smarter” by using risk-based exam methods to single out which advisors to examine, White said “that’s just not sufficient coverage.” While declining to comment on whether a self-regulatory organization should help in that coverage, White said that the agency “should be funded” by Congress so that it can boost those exam numbers. “I’m pushing very hard for that.”
As to critics’ complaints that the SEC is not doing enough when it comes to high-frequency trading, White said she doesn’t believe that’s true. “It’s a high priority for the staff and Commission to really view the range of equity market structure issues, which includes fragmentation and high-frequency trading issues,” she said.
She noted that agency exams have been focused on high-frequency trading and that enforcement actions have been brought in this area. The commission has “ongoing investigations into high-frequency traders and other market participants. So this has been a high priority for a long time, and it continues to be,” she said.
While high-frequency traders are “getting a lot of attention lately, it’s important though to distinguish between abuses and misconduct in that space.”
Even critics of high-frequency traders, White continued, argue “that they’ve added liquidity and some price advantages, […] but there are also concerns about the level playing field; ‘is there any unfairness [and] ultimately do high-frequency traders or a subset of them add or detract from market quality?’”
The public discussion, she added, also tends “to lump all high-frequency traders into a single nomenclature, but the reality is that it’s much more complex than that—you have different high-frequency trading strategies and different issues.”
Bottom line: “It’s an issue that we are intensively focused on, and if we think changes should be made, we’ll make them.”
(Check out Investment Advisor's full IA 25 for 2014 list on ThinkAdvisor.)