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.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
Fiduciary advisors are in peril. The brokerage industry is smothering fiduciary advisors in a well-oiled Wall Street-Washington lobbying campaign. Their strategy: persuade policymakers and regulators that "best interest" advice harms investors, while higher cost, opaque products sales help investors.
Amazingly, their strategy is working.
Key policymakers seem to believe that established law and precedent has been turned upside down; i.e.: fiduciary duties are harmful to our health and warrant a warning label. As such, fiduciary rulemaking at the DOL is gasping for air. By all signs, no majority of SEC Commissioners (three of the five) support a meaningful and true fiduciary rule for broker-dealers.
Meanwhile, FINRA, the brokerage industry’s private self-regulating organization, while discussing fiduciary issues, remains true to its brokerage heritage and ambitions to regulate fiduciary advisors, or RIAs. Encouraged by recent developments, various schemes to promote FINRA's takeover of RIAs exams circulate in Washington. All share one element: granting FINRA more influence to extend brokerage sales rules over RIAs.
This lobbying campaign is a blunt attack on the very rationale for the Advisers Act of 1940: the unquestioned need to protect investors and true investment advisors by separating, in law, securities sales from investment advice. Each has a vital role in the capital markets. Experience teaches they must be kept separate in the minds of investors to be effective in practice. This should not be controversial. There is no serious debate on this point in other professions; medical doctors do not lobby Congress in the public arena for more robust sales rules.
Brokerage sales rules are no substitution for fiduciary advisor best practices. They are starkly different. Explicitly, all brokers say they do right by investors and, clearly, many brokers do so. Implicitly, however, a very different picture emerges as industry lobbyists vigorously defend and protect conflicted advice, opaque fees and expenses, and misleading or incomplete or incomprehensible communications. The tone from the top is clear.
In some respects, investors are ahead of RIAs in recognizing the problem in the marketplace.
Investors are disaffected with financial services and financial institutions generally. They are of two minds on "advisors." While some research suggests investors are satisfied, other research suggests this satisfaction is very thin and the disaffection with Wall Street has seeped into investors' views of advisors.
So industry consultant Chip Roame is on to something, when he says of advisors and brokers, that the public believes "The whole industry is evil... you are lumped in with Madoff." Further, according to researcher Bob Fronk of Harris Interactive, investors know what to do. "One thing the public is screaming out loud and clear about financial services is: be more sincere, be more honest, be more transparent."
Investors do not distinguish advisors from brokers in their titles. Yet, and this is a big "yet," as Fronk’s remark suggests, they do distinguish sales practices from advisory services. They distinguish opacity from transparency and straight talk from mumbo jumbo.
Fiduciary September exists to remind advisors and brokers and policy makers and investors why fiduciary duties matter and what it means to be a fiduciary. During Fiduciary September, respected individuals and practitioners and leaders in finance and law and investor protection will discuss regulatory updates, fiduciary principles and restoring investor trust. A special panel will discuss what RIA best practices mean. We will honor former CFTC Chairman Gary Gensler for his public service with the Frankel Fiduciary Prize.
Fiduciary September 2014 is also a call to action to fiduciary advisors. Fiduciary advisors are in peril and, make no mistake, investors sense something important is amiss.
It doesn’t have to be this way. The first step is clear: Fiduciary advisors must reclaim their proud heritage and state in the clearest possible terms, in the public square, what fiduciary advice means for investors, and how brokerage lobbyists so misunderstand it.
Such a campaign would engender wide support in Congress and throughout the country. Investors would be the loudest cheerleaders of all.
See What's Next for the Fiduciary Standard? by Melanie Waddell.