More On Legal & Compliance
from The Advisor's Professional Library- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
- Best Practices for Working with Senior Investors Securities examiners deal harshly with RIAs that do not fulfill their fiduciary obligations toward senior investors, as the SEC and state securities regulators view older investors as particularly vulnerable and in need of protection.
A friend sent me an e-mail the other day, raising issues about some of the things I’ve been writing about lately. He mostly questions my eyesight, it seems, but I’ll let him tell it in his own words:
“You continue to miss the forest for the trees, and repeatedly gloss over the most critical point: The lack of ‘a continuing duty of care’ guts any meaningful notion of fiduciary by placing it narrowly in the context of “point of sale.” That’s probably the most egregious element at play, but you have yet to address it meaningfully. Why aren’t you just as concerned with this as the other issues you’ve been writing about?”
It’s a fair question that’s worthy of an answer, especially while the SEC is still mulling over what do about a fiduciary duty for brokers. Actually, there are two reasons that I haven’t been harping on the “continuity of care” issue lately: First, I voiced my concerns about the carveouts under Dodd-Frank Sec. 913—which also include proprietary products and charging commissions—when they came out last summer. We all know they’re in the Act, so there’s no real pointed in beating that dead horse.
Second, and more important, Dodd-Frank doesn't say that a lack of continuing care, using proprietary products, and/or charging commissions are consistent with a fiduciary standard for care; only that those activities by themselves won't be construed to violate a fiduciary duty. To my mind, that leaves plenty of room for case law and regulation that spells out the circumstances under which those activities do violate the fiduciary standard. Of course, whether the SEC will write regulations that sufficiently restrict or mitigate these conflicts of interest is problematic at this time.
But as Yogi Berra said: It's never over 'til it's over. The key to whether the Dodd-Frank Act turns out to be client-centered or not will be in the definitions that the SEC writes in its coming regulations. At that level of detail, the Study only says "the SEC should provide guidance" on these and other crucial issues.
I believe that the most crucial definition will be that of "retail personal advice about investments." That will determine which if any brokerage clients fall under a broker fiduciary standard. If the SEC writes that the wrong way, the rest of this argument is moot.
