More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
When you cast your ballot on Nov. 6, regulatory policy for investment advisory firms may not be at the top of your list in deciding who to vote for—or against. But make no mistake, the 2012 elections will have a profound impact on how advisory firms will be regulated and overseen in 2013 and beyond.
Viewed through this admittedly narrow prism, your vote for Obama or Romney will be the most important vote you cast. Why? Because the president has the power to appoint the people who will make the most important decisions about regulatory policies and programs that directly affect the investment advisory profession.
Topping the list is the Secretary of the U.S. Treasury Department. You may think the Treasury Department has little to do with regulating investment advisory firms. But remember that very significant financial services initiatives often come from the Treasury Department. Recent examples include Hank Paulson’s regulatory “modernization” blueprint in 2008, which called for self-regulation of investment advisory firms and “harmonization” of investment adviser and broker-dealer regulation, and Timothy Geithner’s 2009 white paper that formed the framework for what became the Dodd-Frank Act.
Remember also that the Treasury Secretary now presides over the Financial Stability Oversight Council (FSOC), created under Dodd-Frank, which has extremely broad powers to address potential risks in all segments of the financial services industry.
It is certainly possible that Secretary Geithner will leave his current post after the election (many were predicting he would leave after the debt ceiling talks in 2011). Rumors of potential successors that may be appointed by President Obama, if re-elected, include Erskine Bowles, Lawrence Fink, Daniel Tarullo, Laura Tyson, Roger Altman and Lael Brainard. Mitt Romney’s rumored potential picks include Robert Zoellick, John Taylor, Glenn Hubbard, Carly Fiorina, Rob Portman, Meg Whitman and Kevin Warsh.
The president also has the authority to nominate the chairman of the Securities and Exchange Commission. By law, the SEC has regulatory and oversight authority of investment advisory firms that manage assets of more than $100 million. As such, whoever serves as SEC chairman will have the most direct impact on policies and programs governing the investment advisory profession.
While SEC Chairwoman Mary Schapiro has not made any public statements, many observers feel she will step aside after the upcoming elections. If this is true, the SEC will have new leadership in the coming months, no matter who wins the White House.
Other important presidential appointees include officials at the Department of Labor who administer laws and regulations relating to private pension plans under ERISA, as well as the chairman of the Commodity Futures Trading Commission, which exercises broad authority over the futures and options markets.
Meanwhile, on Capitol Hill…
In addition, your vote for members of Congress may be consequential. The House Financial Services Committee has broad jurisdiction over securities and other financial services laws, as well as oversight jurisdiction of the SEC and other regulatory agencies. While control of the House will likely continue to be in the hands of the Republicans, the chairmanship of this important committee will change. Rep. Spencer Bachus (R-Ala.), the author of recent legislation that would authorize FINRA regulation and oversight of thousands of investment advisory firms, will relinquish his chairmanship of the Financial Services committee due to term limits imposed under Republican caucus rules. Potential successors include Rep. Jeb Hensarling (R-Texas), Rep. Scott Garrett (R-N.J.), and Rep. Ed Royce (R-Calif.).
The situation in the Senate is less certain. Democrats currently hold a narrow majority, but are defending twice as many open seats as Republicans. Sen. Tim Johnson (D-S.D.) currently chairs the powerful Banking Committee that has broad jurisdiction over securities-related issues. Sen. Richard Shelby (R-Ala.) is the committee’s Ranking Republican and would likely take over as chairman if Republicans end up with a majority of Senate seats. However, unless Senate rules are revised, most legislation will not move unless there are at least 60 votes in the upper chamber. That means that the Senate will still be the key in deciding what legislation, if any, will move to the president’s desk. (See AdvisorOne’s comprehensive article on the 11 Congressional committees about which advisors should be concerned for more insights).
No one can accurately assess all the potential possibilities—even if we could determine who all the key players will be, it’s impossible to know where these individuals stand on investment advisor issues. But it is clear that the next Administration and the 113th Congress will result in a new cast of characters who will wield power over policies and programs that directly affect investment advisory firms.
As always, I welcome your views and perspectives…