July 4, 2012
OUCH! That hurts!
The Dodd Frank Act was the Rx that promised to fix America's ills. It may have just been a placebo. Rules under Dodd Frank have been patched together, but Republicans want to pronounce it dead.
Here are the prescriptions that were dispensed:
Last year we completed new Form ADV Part 2 disclosure brochures, and this year we filed the revised online ADV Part 1's. Because of this year's "Switch" in registration status, many federal firms moved to state registration, and private fund advisors registered with the SEC for the first time. Was this the Big Switch or the Big Shift? The SEC is still just as burdened as before, and without an adequate budget.
The SEC and FINRA released guidance for RIAs and BDs respectively on how financial advisors can become more of a social breed via electronic communications. You can now twiddle (or tweet) the day away on the likes of Facebook and attend professional networking mixers on LinkedIn without ever leaving your office. (Oh, but read the guidance so you will stay in compliance.)
Put a HOLD on that trade! If the do-not-trade is a recommendation from a broker/dealer, it needs to be documented. FINRA suitability rules now cover Hold Strategies. This action of non-activity requires supervisory review.
ERISA has been active with rulemaking. There are now participant-level and plan-level disclosures that advisors must abide by. The Department of Labor wants to make things better by redefining "fiduciary" but industry thinks it is an overdose that will kill retirement planning.
Whistleblower rules were adopted, designed to fix corporate abnormalities, but instead may fester greed among the working ranks. Rather than reporting ailments to management for self-diagnosis, a tipster can head straight to the SEC by the lure of a monetary reward.
Jumpstart our Business Startups ("JOBS") Act and Crowdfunding is designed to put more people to work. What it really does at its essence is liberalize rules on private and public offerings, allowing more general solicitations and larger unregistered offerings. Oh, of course the investments in the companies will inject economic growth and get more people jobs. (I guess.)
While JOBS provides intravenous fluids to fundraisers, simultaneously the threshold of "accredited investor" has increased. This makes it more difficult for an investor to be allowed into a private offering.
Congress now needs to comply with the prohibition on insider trading like all the rest of us, under the STOCK (Stop Trading on Congressional Knowledge) Act. One senator was quoted as saying that congressmen should have enough sense not to do insider trading without legislation. Yes, you would think so. The Bill was originally introduced in 2006, died in committee, reintroduced in 2007, and died again. In November 2011 it took an investigative report on 60 Minutes to shock it back to life and speedy recovery for a Presidential signature in April 2012.
Compliance Officers were able to breathe a little easier as an Urban legend was dismissed. The SEC dismissed a pivotal case against Theodore Urban. He had been charged with failure to supervise as the Compliance Officer when a subordinate violated securities laws. One SEC Commissioner has vocalized his beliefs that Compliance Officers should be able to perform their jobs without fear of failure to supervise liability. However, what is needed is clear published guidelines from the SEC to provide a framework of who is and who is not a supervisor.
Here are the medicines we have yet to take:
The SEC needs to mend the fiduciary fissure between BDs and RIAs. Investment advisors are deemed fiduciaries and want a consistent definition for the brokerage industry, while the differing business models provide challenges. While fighting this battle, there is another struggle taking place against the Department of Labor's proposed definition.
The Red Flags (Identity Theft) rule has flared-up again, as the SEC now must prescribe rules for BDs and make a determination if RIAs are immune or be subjected to the same remedies.
We are still debating the birthing of a Self-Regulatory Organization ("SRO"), as the vast majority of the close to 12,000 Registered Investment Advisers have not seen hide nor hair of a regulatory audit in decades. A bill introduced by Representatives Bachus and McCarthy is likely to wind its way into law.
The Volcker rule was proposed, under a barrage of comments to withdraw. The proposed rule which curbs banks' proprietary trading could cause market mayhem and harm U.S. competitiveness.
Money market funds are causing anxiety for SEC Chairman Mary Schapiro. Fear of "breaking the buck" has initiated a proposal that could cause your money market fund to freeze a portion of your assets, or float the value rather than maintain the stable $1 per share. Industry reports that the indicators are benign.
Did you realize that President Obama signed an Executive Order to streamline regulations in July 2011? Did you feel the relief? Or did the regulations continue to poke and prod at you?
There are resources to help you avoid bumps and bruises.
Adhere the enclosed Band-Aid to your file cabinet. It's your reminder that you may get beaten up from time to time, but there is relief.
If you need your burden lifted, go to www.LiftBurden.com to access an array of compliance resources.
- CompliancE-Post: A free monthly e-mail service with brief postings of what's the hot industry buzz.
- CompliancE-News: The executive summary of all the news that made the news. Annual subscription 12 monthly e-mail issues.
- CompliancE-Alert: A value-added subscription service (which also includes the CompliancE-News) - provides timely alerts when news hits, and newly published research and forms.
To avoid a nasty fall if you are just getting your legs (or to strengthen old bones), get your hands on Go to CEO! How to Start Your Investment Advisory Firm - available as an e-book.
To mend bruises, call or email me for consulting services. I work with a limited number of clients under annual retainer as an active team member. The fee is custom quoted based on circumstances (minimum annual $12,000) for unlimited consultations. I generally keep a full client load. However, I do take on new clients from time to time, so keep those inquiries and referrals coming.
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I lift the burden of compliance and marketing off your shoulders. July 4th marks 23 years of service as a "Professional Weightlifter."
To claim your Band-Aid (affixable to your filing cabinet or any metal object), please e-mail me at: Nancy@liftburden.com