A growing number of registered investment advisors flirt with social media as a client communication tool, but less than half of firms using social media retain all their social media content or even have a record retention policy.

The federal government and its agencies have yet to take a solid position on social media use by investment professionals. But despite the fact that the SEC and FINRA have not enunciated rules or regulations specifically targeting social media use by RIA and brokerage firms, general advertising, solicitation and communication rules undoubtedly apply to new media—FINRA issued guidance last year saying as much.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of social media in Advisor’s Journal, see Getting Your Feet Wet in the Social Media Market (CC 11-79), Advisors’ Stairsteps of Influence (CC 11-49) & SEC Says “Not So Fast” to Advisor Social Media Marketing (CC-11-40).

Looking to extend your firm’s reach overseas to expatriates and foreign nationals? The Financial Industry Regulatory Authority (FINRA) is warning you to look before you leap. Both U.S. and foreign regulators may have jurisdiction over U.S. firms soliciting foreign citizens, greatly complicating compliance for cross-border operations.

FINRA recently issued Notice to Members 11-34 (NTM 11-34), reminding members that, whether they’re soliciting business on or offshore, they’re still bound by U.S. law—regardless of whether foreign law permits an activity. The notice, issued at the end of July, reaffirms prior notice NTM 00-02.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the debt talks in Advisor’s Journal, see Democrats Call Debt Limit Unconstitutional (CC 11-134), Debt Limit Standoff Boils Over (CC 11-115) and Storm Clouds over U.S. Debt (CC 11-85).

The U.S. Chamber of Commerce is warning that self-regulatory organizations (SROs) like the Financial Industry Regulatory Authority (FINRA) are rapidly morphing into regulatory bodies without the self-governance component that was supposed to be their hallmark.

FINRA’S shift from SRO to quasi-governmental agency has not brought with it the transparency we expect from government agencies. The Chamber’s Center for Capital Markets 2011 summer paper, The Unfinished Agenda, notes that, although FINRA has tremendous regulatory influence in the capital markets, its power is not tempered by the “checks and balances” applicable to government agencies.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FINRA and its regulatory activities in Advisor’s Journal, see FINRA Sets Regulatory Sights on Structured Products (CC 11-130), FINRA Rule 45-30: Expansive New Complaint Report Requirements (CC 11-96), & FINRA Changes the Rules on How Low-Price Equities Are Traded (CC 11-99).

The idea of appointing a self-regulatory organization (SRO) to oversee registered investment advisors (RIAs) has been knocking around in Washington for almost a decade. But the push to delegate some of the SEC’s authority over RIAs to an SRO has new urgency as the SEC struggles under budget cuts and its increased responsibilities under the Dodd-Frank Wall Street Reform Act.

The situation at the SEC is so dire that some of the most strident opponents of an SRO for advisors are backpedalling, recognizing that the Securities and Exchange Commission (SEC) may be unable to fulfill its mandate without outside assistance. Even the Consumer Federation of America (CFA), a consumer organization that has long advocated against establishment of an advisor SRO, is coming around.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the proposal to appoint an SRO for advisors in Advisor’s Journal, see FINRA Plans New Power Grab as SEC Falters (CC 11-67) & Republicans Balk at RIA User Fees (CC 11-60).

Authors: George Mentz and Benjamin Terner

The Securities and Exchange Commission (SEC) recently adopted rules that require advisers to hedge funds and other private funds to register with the SEC. The new rules also establish exemptions from SEC registration and reporting requirements for certain advisers, and reallocate regulatory responsibility.

The rules adopted by the SEC implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding investment advisers, including those that advise hedge funds.

The rules provide for a transitional exemption period so that private advisers, including hedge fund and private equity fund advisers, who are required to register should do so by March 30, 2012. However, certain rules regarding exemptions for venture capital fund and certain private fund advisers are effective July 21, 2011.

The rules come on the heels of the financial crisis as legislation to protect consumers was a Congressional prerogative. That’s because generally a significant number of individuals and institutions invest a substantial amount of assets in private funds, such as hedge funds and private equity funds.

However, until the passage of the Dodd-Frank Act, advisers managing those assets were subject to, what some consider, not enough regulatory oversight.

With the Dodd-Frank Act, Congress attempts to close the “regulatory gap” by generally extending the registration requirements under the Investment Advisers Act to the advisers of these funds. The new law also provided the SEC with the ability to require the limited number of advisers to private funds that will not have to register to file reports about their business activities.

It has been the case that for many years advisers to private funds were not required to register with the SEC because of an exemption that applies to advisers with fewer than 15 clients – an exemption that counted each fund as a client, as opposed to each investor in a fund. As a result, some advisers to hedge funds and other private funds have remained outside of the SEC’s regulatory oversight even though those advisers could be managing large sums of money for the benefit of hundreds of investors.

Nevertheless, Title IV of the Dodd-Frank Act eliminated this private adviser exemption. Consequently, many previously unregistered advisers, particularly those to hedge funds and private equity funds, will have to register with the SEC and be subject to its regulatory oversight, rules and examination. This process will come at a great expense to those now under SEC control.

This can be attributed to the fact that these advisers will now be subject to the same registration requirements, regulatory oversight, and other requirements that apply to other SEC-registered investment advisers.

The SEC is also requiring additional information from investment advisers that are required to register with the Commission. Generally these individuals provide information in their registration form that is not only used for registration purposes, but that is used by the SEC in a variety of ways “to support its mission to protect investors.”

To “enhance its ability to oversee investment advisers to private funds”, the SEC is beginning to require advisers to provide additional information about the private funds they manage. The information obtained as a result of these amendments is designed to help the SEC in fulfilling its increased responsibility for private fund advisers arising from the Dodd-Frank Act.

In conclusion, all persons are subject to federal laws and the laws of the SEC. As an example, insider trading (10 B-5) applies to all of us.  The question is whether this is duplication of regulation?  As you know, FINRA regulates their licensed advisors while the SEC also can regulate these advisors.  Also, 3^rd party custodians and administrators are generally regulated by the SEC.  An example of a 3^rd Party would be Schwab or Fidelity which both provide “Institutional & Administrative” services for a fee to hedge funds, money managers and independent RIAs.  While protecting the consumer is a great idea, having 3-4 layers of regulation over the same accounts and securities becomes somewhat cumbersome. On top of that, many states have these same advisors under their supervision and regulation.

While this all sounds confusing, this is just for securities.  When the customer or advisor deals with banking and insurance, these are supervised by other agencies at  both the state and federal levels.

While the concept of Dodd-Frank may be a good idea from a consumer protection point of view, we have to wonder if there will be too many regulators and too little producers.  In sum, this could be the best time in history to start a career in financial compliance.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Author: George Mentz

Today’s article discusses the similarities of the personal financial advisor position with that of financial analysts. We draw comparisons in light of market data and trends.

As presented in a previous article, it was reported by 2016 jobs for personal financial advisors will have grown over 40% over 2006 levels, while financial analyst jobs—think FAD Financial Analyst Designates or  AFA Accredited Financial Analysts  types—will have grown over 30%. [1] The financial analysts job market is thus in slightly slower growth pattern than personal financial advisors.

As commentators have noted, there has traditionally been very little overlap between the securities analyst and financial planning communities.  [2] This conclusion is based on the “number of financial analysts who are also financial planners.  It thus “appears that relatively few analyst professionals have pursued personal financial planning.” Generally speaking, financial planners and financial analysts  are not required to hold double accredited program degree or diplomas; thus, there has been a recent transition toward accredited business school program exams and education that leads to degree and certification eligibility.

Interestingly it is convenient that the financial planning and analysis jobs would start to merge as somebody who has completed a financial analyst designation  will already have learned much of the material related to financial planning or private banking  [3] However, graduate professional designations such as the CWM ® certification [4] which is awarded from the American Academy of Financial Management ®  [5] require further graduate education in extra areas beyond investments, finance or planning including:  economics, trusts, estates, global tax, macro forces, private banking, wealth strategy, money and banking, hedge funds, global risk management, and other. [6]

For example, financial analysts may provide guidance to businesses and individuals making financial decisions. The financial analyst role or profession began with a focus on financial bookkeeping and reporting skills, but has morphed over the recent years into a financial research job with a focus on fundamentals.  These skills are similar to those that financial advisors use when consulting with clients, but advisors and planners by default have been trained more on the issues of FINRA rules, retirement planning, tax, estates, personal finance, insurance sales, and education planning.  Moreover, financial analysts now tend to focus on assessing the performance of stocks, bonds, commodities, sectors, and other types of securities.  These skills also are generally employed by the personal financial advisor. [7]

What’s more, some experienced managers, generally portfolio managers, supervise a team of analysts and select the mix of products, industries, and regions for their company’s investment portfolio. These managers or directors are not only responsible for the overall portfolio, but are also expected to explain investment decisions and strategies in meetings with investors.

An accredited bachelor’s or graduate degree is normally required for entry level or higher financial related positions. Most employers require a bachelor’s degree in a related field, such as finance, business, accounting, statistics, or economics. The business schools that are ACBSP or AACSB accredited represent the top business programs that have met the requirements of double accreditation. [8] An understanding of statistics, economics, and business may be essential, and knowledge of accounting policies and procedures, corporate budgeting, and financial analysis methods is recommended.   A excellent opportunity to take courses in tax, finance, estates, asset management, wealth management and compliance is to apply to the online graduate program at: http://llmprogram.tjsl.edu

Since both financial advisors, planners and analysts require similar qualifications, those individuals who have the proper accredited education can easily transition between the two functions providing more value to clients.  All entry level persons should be prepared to study for and take relevant regulatory licensing exams such as: Insurance License, Series 6, Series 7, Series 65, 66 or  other state exams that are offered or regulated by the Insurance Commissioner [9] or  FINRA [10].

A great start to finding a career in banking and finance would be searching online with  www.AAFM.eFinancialCareers.com This career portal shows available jobs around the world in finance, banking, investments, hedge funds, risk management, insurance, compliance and more.  [11]

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[1] United States Government  Department of Labor, Bureau of Labor and Statistics, Financial Analysts and Personal Financial Advisors. Occupational Outlook Handbook, 2010-11 Edition.”  http://www.bls.gov/oco/ocos301.htm

[2] Ibid.

[3] Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.”

[4] FINRA Financial Industry Regulatory Authority –  Understanding Professional Designations – http://apps.finra.org/DataDirectory/1/prodesignations.aspx

[5] United States Government  Department of Labor, Bureau of Labor and Statistics, Financial Analysts and Personal Financial Advisors. Occupational Outlook Handbook, 2010-11 Edition.”  http://www.bls.gov/oco/ocos301.htm

[6] AAFM ® CWM Curriculum Facts: www.aafm.us or http://www.financialcertified.com/certified_chartered_wealth_manager_cwm_wiki.html

[7] Financial Advisors http://financecareers.about.com/od/financialadvisor/a/finadvisor.htm

[8] List of Double Accredited Business Schools http://financialanalyst.org/accreditededucation.html CHEA Council for Higher Education Accreditation http://www.chea.org/Directories/special.asp

[9] National Association of Insurance Commissioners http://www.naic.org/state_web_map.htm

[10] FINRA Financial Industry Regulatory Authority http://www.finra.org/

[11] eFinancialCareers.com www.AAFM.eFinancialCareers.com

The Financial Industry Regulatory Authority (FINRA) is targeting structured products over concerns about unsuitable sales to retail customers. In an exclusive interview with AdvisorOne (a Summit Business Media product) Bradley Bennett, enforcement chief at FINRA, said that the agency’s caseload relating to the recent financial crisis has eased up, and the agency is ready to renew its focus on structured products.

Structured products are often marketed to retail customers without an adequate explanation of their associated risks.  “They purport to provide the alchemy of lowering risk while increasing yield,” Bennett said, “but the risk needs to be explained” both to the broker-dealer’s “sales force and customers, and be suitable given the customer’s financial circumstances.”

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of structured products in Advisor’s Journal, see SEC Warns Investors about Principal Protected Notes (CC 11-117).

For in-depth analysis of structured products, see Advisor’s Main Library: 7774. What is a structured product? How are structured products taxed?

In a low interest rate world, high-yield investments offering principal protection are enticing to investors. But the complexity of some high-end investment products has the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission’s (SEC) warning investors to look before they leap.

In an alert titled Structured Notes with Principal Protection: Note the Terms of Your Investment, the regulators warn investors that these structured products may not be what they seem. Although they are marketed under a variety of names with a “principal protection” component—e.g. “absolute return” and “minimum return”—the true extent of their safety is never obvious at first glance. Investors need to read the fine print to determine whether they are suitable for their investing needs and risk tolerance.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

Brokers’ disciplinary histories are now prominently displayed for the web savvy public; they’re no longer filed away at the Financial Industry Regulatory Authority (FINRA), where only the most diligent investors will find them. FINRA has made your disciplinary history freely and easily available to the public by launching a web-accessible discipline database.

Whether the easy accessibility of the information is a positive or negative will depend on a broker’s history. Those with a clean record will undoubtedly benefit from the easy accessibility of the information and the ease with which clients and prospects can canvass their record and compare it to others. Those with a negative history, whether deserved or not, may now find themselves on the defensive with prospects more often.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FINRA complaint and disciplinary procedure in Advisor’s Journal, see FINRA Rule 45-30: Expansive New Complaint Report Requirements (CC 11-96) & Broker Bonus Arbitration Bottleneck Forces FINRA to Reconsider Arbitrator Qualification Standards (CC 11-08).

The Financial Industry Regulatory Authority (“FINRA”) has issued a regulatory notice addressing price volatility concerns associated with low-priced equity securities in customer margin and firm proprietary accounts. The notice advises that close attention be paid to low-priced equity securities; price volatility is usually associated with low-priced equities because they are inherently volatile. But what does FINRA consider a “low-price equity,” and what does it mean for you and your clients?

FINRA advises firms to weigh the risks that come with low-priced equity securities before extending credit in strategy-based or portfolio margin accounts. FINRA cautions firms to consider “volatility and concentrated positions in a single customer account and across all customer accounts, as well as the daily volume and market capitalization of each security when imposing ‘house’ maintenance margin requirements.”

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FINRA-issued guidance in Advisor’s Journal, see Getting Your Feet Wet in the Social Media Market (CC 11-79) & SEC Says “Not So Fast” to Advisor Social Media Marketing (CC 11-40).