More On Legal & Compliancefrom The Advisor's Professional Library
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- 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.
Two important issues for the advisory industry will remain unresolved until next year: how to boost investment advisor exams—either through a self-regulatory organization (SRO) or via user fees—as well as a rule to put brokers under a fiduciary mandate.
House Financial Services Committee Chairman Rep. Spencer Bachus, R-Ala., has said that his measure to have an SRO oversee advisors will not move forward without a consensus within his committee. While advisory groups see that as good news, they concede that the issue, however, has only been put off temporarily.
Kevin Keller, CEO of the CFP Board, says that while he agrees that the current examination rate of advisors is “a serious problem,” he’s glad Bachus is “taking a step back.” Keller and the Financial Planning Coalition—of which the CFP Board is a member, along with the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA)—maintain “that providing the SEC with the resources it needs is the best solution to the problem” of advisor exams.
As she said she would, Rep. Maxine Waters, D-N.Y., introduced in July the Investment Adviser Examination Act of 2012, which would allow the Securities and Exchange Commission (SEC) to collect user fees from advisors to fund their exams in lieu of Bachus’ SRO.
Barbara Roper, director of Investor Protection at the Consumer Federation of America (CFA), says that the Waters bill “demonstrates that there is a user fee alternative that can achieve broad support from various stakeholders.” However, “the real question is whether Congress will be able to break the logjam next year and adopt a bill that finally resolves this problem of inadequate investment advisor oversight.”
In introducing the user fee bill, Waters said, “It is absolutely essential that we improve the oversight of investment advisers [...].” Since the crisis four years ago, she continued, “we have witnessed an unfortunate deterioration in the public’s confidence in our financial markets. Though the vast majority of investment advisers operate with integrity and want to help their clients meet their financial goals, it is clear that the SEC’s current examination levels need to be augmented.”
Waters said she believes the user fee approach “provides the simplest, most efficient solution to the problem of inadequate adviser oversight” because the user fees would be used to fund regulation, not to subsidize other functions at the SEC.
The Financial Coalition said in a statement that Waters’ bill “is a credible alternative to the Investment Adviser Oversight Act of 2012 (H.R. 4624), [introduced in April by Bachus], which would impose higher costs and a redundant regulatory burden on small advisory firms by mandating that they join a self-regulatory organization (SRO), in addition to current SEC and state regulatory oversight.”
Between “Waters’ legislation and the recent Senate budget providing increased resources for investment adviser oversight, it is clear that an SRO is not the only option for increasing the frequency of examinations,” the Coalition said.
Also likely not arriving this year—and surely not before the November election—is a proposal by the SEC to put broker-dealers under a fiduciary duty when providing personalized advice to retail customers under Section 913 of the Dodd-Frank Act. David Tittsworth, executive director of the IAA, said that even if the SEC were to propose such a rule in the near future, it is “unlikely” that it would be finalized before the end of the year. What’s more, he said, “it is certainly possible that the fate of any such rulemaking may be affected by the results of the Nov. 6 election.”