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Compliance February 16, 2011
SPARK Examines SEC Fiduciary Study
The SPARK Institute hosted a Webinar Wednesday that discussed how “harmonization” would work if broker/dealers (B/Ds) and registered investment advisers (RIAs) were to work under a uniform fiduciary standard.
Reported by Nicole Bliman
SPARK invited attorneys from Dechert, LLP, to present their “Path Toward Implementation” report. In the report, Geoffrey Kenyon, Michael Sherman, and Susan Camillo recommend a course of action if the Securities and Exchange Commission (SEC) decides to move forward with its proposal for a uniform fiduciary standard (see “SEC Report Leaves Unanswered Questions”).
Dechert said the SEC should identify specific examples of material conflicts of interest, prohibit certain conflicts, and facilitate uniform disclosure as to other conflicts. In terms of disclosure, the SEC should consider a “general relationship guide” akin to the new Form ADV Part 2A to cover all retail customer relationships, specific transaction-based disclosures/consent requirements for transactions that the SEC believes raise particular customer protection concerns, and guidance or rulemaking on how B/Ds should fulfill the uniform fiduciary standard when engaging in principal trading.
The outline for harmonization included six recommendations:
1. Advertising and other communications: substantive advertising and customer communication rules and/or guidance, as well as harmonizing internal pre-use review requirements for advertisements.
2. Use of Finders and Solicitors: this would provide additional guidance or harmonize existing regulatory requirements.
3. Supervision with a focus on whether harmonization would facilitate the examination and oversight.
4. Licensing and registration of firm: specifically whether disclosure requirements in Form ADV and Form BD should be harmonized where they address similar issues and whether investment advisers should be subject to substantive review prior to registration similar to FINRA registration.
5. Licensing and continuing education requirements for persons associated with B/Ds and investment advisers.
6. Consider modifying the Advisers Act books and records requirements, by adding a general requirement to retain all communications and agreements related to an adviser’s “business as such.”
The attorneys noted that SEC Chairwoman, Mary Schapiro, has emphasized that the report was nothing more than a first step, and with the Commission’s extremely strained resources, they questioned if the proposal will ever be finalized at all.