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August 07, 2023 at 01:07 PM
What You Need to Know
- The current administration seems to believe advisors get paid too much for doing too little; the industry must push back.
- What the SEC continues to clearly miss is that advisors are spending more time and resources on compliance — but not for the benefit of their clients.
- In addition, too many examiners continue to lack the necessary working knowledge of the industry that they are charged with examining.
Beware! Never before have I seen a more aggressive Securities and Exchange Commission. They’re coming for all advisors. Their mission: to cause financial pain.
“Tom, come on, you can’t be serious,” you’re probably saying. Oh, but I absolutely am. I warn advisors not because I or my firm are trying to “scare up” more clients.
On the contrary; I am in the latter stages of my career, and I am troubled by what I see on an all-too-frequent basis. I feel compelled to speak out on behalf of the industry that I admire and respect. I truly wish I didn’t have to write this.
During the past 35 years, I have most likely been through more SEC exams than any attorney in the country. Although I have not counted, I assume that it is substantially in excess of a thousand exams.
There’s something profoundly different about the SEC under the Biden administration — and not for the better. It is much more progressive and aggressive relative to the advisors that it regulates. This administration seems to believe advisors get paid too much for doing too little — and the industry must disabuse the commission of such a belief.
These troublesome changes are not devised at the SEC’s branch levels. The vast majority of branch employees are fair-minded hardworking professionals who are charged with carrying out the directives of the commission’s C-Suite leadership.
During current examinations, advisors are too often presumed to be potential financial predators, seeking to take advantage of their clients where and whenever possible.
The onus is on the advisor to dispel such presumptions during the examination process. Plus, the SEC does not discriminate between big and small, fee-only and fee-based advisors. Moreover, given the transition to remote exams, the examination process can take in excess of one year from start to finish.
What the SEC continues to clearly miss is that advisors are spending more time and resources on compliance — but not for the benefit of their clients. It’s only for them to be better positioned to complete a prospective overly aggressive SEC exam.
Don’t Be Afraid to Push Back
What do I mean by financial hardship, which I referred to at the start of my piece?
The commission’s examination objective appears to seek to cause advisory firms to reimburse clients for a myriad of issues, including client fee/billing process, inartful drafting of (or conflicts between) Part 2A or advisory agreements (inartful drafting will be construed against the advisor), minimum fees and charging on assets for which the advisor does not maintain trading authority.
