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Dear Reader
July 4, 2011
Anniversary Letter
The Year In Review
Dodd Gang It! Excuse me for using those four letter words, but FRANKLY it's been a frightful year, thanks to Dodd Frank and the rest of the Congressional gang.
Let's flashback one year to July 2010. The yet-to-be-named Dodd-Frank Wall Street Reform and Consumer Protection Act (all 2,315 pages) was on Obama's desk waiting to be signed into law. The warning lights had already begun. The arduous task of rulemaking (533 of them) was ahead. Instead of rules, we got Study after Study - 200 to 2,000 pages each. Here's a synopsis of Studies that were released:
- 913: BD/IA Fiduciary Standard - gaps and overlaps - confusion or harmonization
- 914: Enhancing RIA Exams - quandary looms over SRO
- 919B: Investor Access to Information on RIAs, BDs, and Reps - public disclosure database
- 967: Operation of the SEC - weaknesses within SEC may be solved by stronger budget
And 365 days later, we are still arguing about the fiduciary duty, harmonization, and who's the best SRO in the land. Just a few rules actually got implemented (now in full force and effect) that had direct and material affect on Broker/Dealer and Registered Investment Adviser firms.
The first rule to see the light of dawn was the new Form ADV 2, replacing the old ADV II. No more checkboxes - now just plain-English disclosure. While complex in its rollout dates (new firm vs. existing firm; 12/31 FYE vs. other FYE; Part 2A vs. Part 2B) most RIAs had a March 31 filing due date. This was an eye-opening exercise as firms rushed to beat the deadline.
The next flash was Pay-to-Play. This rule does not ban political contributions - there are just truth and consequences if you do - like halting business with government clients. Beware of sending donations to your favorite local politician.
If ya see a red light, don't stop - go straight to the nearest SEC office. Despite budgetary constraints, the SEC now has rules in place that pays hefty rewards to "Whistleblowers." This gives company employees a chance to collect multi-million dollar awards by reporting wrongdoing to the SEC, and a disincentive to work it out through the internal corporate structure - despite encouragement from the SEC to do so. (A whistleblower in the $550 million Goldman Sachs case could have collected as much as $165 million.)
A glimmer on the horizon is that Private Advisers and Hedge Funds must register as Investment Advisers. And Municipal advisors must register with the SEC and the MSRB. Everyone will be registered so the government can head off another financial crisis - assuming the regulators can get out to audit all these new entities (let alone all the existing firms that have not seen their governing agencies for years on end).
Don't blink too long. In July 2011 "The Switch" will be triggered. Back in 1996 it was "The Great Divide" where RIAs with less than $25 million of Assets Under Management ("AUM") had to de-register with the SEC and remain registered solely with the state. Now with its budgetary woes and inability to examine the almost 12,000 RIAs under its regime, the SEC is downloading to the states all RIAs with less than $100 million AUM.
It was stop and go at the SEC while they saw their budget numbers go up and down (and slightly up again) in Congressional debates. The question still remains if the SEC can continue to operate efficiently at current levels.
Send the SOS to the brokerage community. Dodd-Frank or not, BDs certainly have not had a reprieve in rulemaking since the merger of the NYSE and NASD. The changes to the consolidated rulebook just keep going and going - like the Energizer Bunny. FINRA must be worried about what to do with all the time they will have on their hands when the rulebook is done, which is why they want to launch into the investment advisory regime.
What comes next?
We are left wondering if there will be a Self-Regulatory Organization ("SRO") for Investment Advisers, and if yes, who and how that will take shape. Will it be the seemingly frightful folks at FINRA, or the unnerving unknown? It might even be a group of college students under the moniker of SROIIA!
And if we can ever get fiduciary harmonization between BDs and RIAs, how will that play out with the definition of fiduciary under the Department of Labor ERISA rules?
Oh, and will all these changes be for naught? The Republicans are pushing legislation to overturn Dodd-Frank. If it leaves - Where shall I go? What shall I do? Frankly my Dodd, I don't give a Democrat.
There are resources to help light your path.
The enclosed blinking light is your personal warning device. Wear it when the speed of rulemaking puts pressure on you to keep abreast - when the regulations become so onerous that they impede your operations - when the impact of a new law challenges your very ability to succeed. Or, just turn to The Consortium.
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.
For those stopped at the starting gate (or ready to start fresh again), get your hands on Go to CEO! How to Start Your Investment Advisory Firm - available as an e-book.
While the new ADV 2 has been implemented by virtually all advisors, you may want to revisit what you've done. And some lucky late fiscal year end filers still have some time to get the first draft out of the box. Go to www.ADV2compliant.com.
If you are tired of being stopped in your tracks, call or email me for consulting services. I work with a limited number of clients under annual retainer. 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.
Additional compliance resources... If you are a do-it-yourself type person, I offer an array of products (forms, documents, research papers) that are both educational and easily customizable to your practice. Click here for a complete list.
I lift the burden of compliance and marketing off your shoulders. July 4th marks 22 years of service as a "Professional Weightlifter."
Nancy Lininger
To claim your personal warning device (blinking light), please e-mail me at: Nancy@liftburden.com
Tell me "Dodd Gang It - I want it" and give me your mailing address.
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