The SEC has a number of initiatives on its plate this year that could make advisors’ lives easier, or not. For instance, advisor regulation will be on the securities regulator’s mind as SEC Chairman Christopher Cox receives early this month recommendations from two of the Commission’s top staff members on the steps the securities regulator should take in light of the recent findings of the Rand report.
Andrew Donohue, director of the SEC’s Division of Investment Management, said at the Investment Adviser Association’s (IAA) compliance conference in Washington March 25 that he and Eric Surri, director of the SEC’s Trading and Markets division, would deliver the recommendations to Cox by May 5. While he declined to divulge details about the recommendations, Donohue did say at the IAA event that it was “enormously important for us to get it [the recommendations] right.” Donohue told me in a separate interview in early April that it would be up to Cox to decide when, and if, to make those recommendations public.
The Rand report, which studied whether investors are clear on the differences between broker/dealer and investment advisor services, found that while those investors are confused about who’s a broker and who’s an advisor, they are nonetheless pleased with the services they get from their financial professional of choice.
The issue of whether to put advisors and B/Ds under one set of regulations is heating up. David Tittsworth, executive director of IAA, told conference goers there could be a “complete change of advisor regulation” as there’s talk now of advisors being subject to B/D regs and vice versa. But he, like others at the conference, argued that B/D and advisor regulation should remain separate because they are two distinct businesses.
Discretion, C Shares, Wrap Accounts
In my April conversation with Donohue, he said he did not foresee advisors and broker/dealers being put under one set of regulations. “I do think there are certain areas where [advisors and B/Ds] are doing very similar things, and then there are certain areas where they are doing totally different things,” Donohue said. An example, he said, is discretionary investment management. “All of the things we’re talking about in Rand is really non-discretionary. So non-discretionary advisory versus what broker/dealers do, you could look at that and say some of those things could be similar. But once you get into the discretionary area, people managing other people’s money, that’s much different than a broker/dealer relationship.”
Donohue said there are clear signs that the advisor model is taking on more broker/dealer attributes. “I think it’s quite clear that there’s been a number of folks that had previously been registered as broker/dealer reps who have opted to move over into the advisor space and get paid on an asset basis, and yet not do much different for their clients, at least ostensibly, than what they had done when they were broker/dealers.”