As questions arise about the SEC’s ability to fulfill its mandate, and a growing chorus of commentators, legislators and professionals calls for appointment of a self-regulatory organization to oversee registered investment advisors, Financial Services Committee Chairman Spencer Baucus is proposing a less radical solution to the agency’s problems.

Chairman Baucus is drafting legislation—the SEC Modernization Act—that would reorganize the Securities and Exchange Commission (SEC), and bring “comprehensive reform” to the agency. “The SEC is structurally flawed and suffers from operational inefficiencies and organizational incoherence,” according to Chairman Bachus. “This legislation will be a comprehensive restructuring of the SEC. It will make the SEC more efficient, consolidate duplicative offices, enable the agency to use better technology, and strengthen ethical safeguards to avoid conflicts of interest.”

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 SEC and its regulatory activities in Advisor’s Journal, see Better Late Than Never: SEC Implements the Switch (CC 11-129), Disarray at the SEC Is Complicating the “Switch” (CC 11-83), & Hedge Funds Must Now Register with the SEC under the New Wall Street Reform Act (CC 10-45).

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).

If you’re considering transitioning your book of business to a new firm, maintaining the confidentiality of client information should be your overarching concern. Navigating a move without triggering a lawsuit can be challenging, but there’s a protocol that provides advisors with a best practices guide when moving between firms.

In 2004, three wirehouses – Citigroup Global Markets, Inc. (“Smith Barney”), Merrill Lynch, and USB Financial Services, Inc. – created the Protocol for Broker Recruiting (the “Protocol”). The Protocol’s primary purpose is to safeguard clients’ privacy and flexibility when choosing Registered Representatives (“RRs”) – especially RRs who are switching firms. By reducing litigation over RRs transitioning to new firms, the high costs associated with competitive recruiting efforts can be minimized and client information can remain protected.

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 broker-dealer issues in Advisor’s Journal, see  Is a Hybrid Practice Model Right for You? (CC 11-46), What’s Driving the Increasing Appeal of the RIA Model? (CC 11-69).

A large majority (86%) of advisors who are with an independent broker-dealer find the idea of life at an independent registered investment advisor (RIA) appealing, according to a Schwab Advisor Services study released on March 29^th. And when the advisor knows someone who has already made the switch, the number who like the idea of making a move to the RIA model jumps to 95%.

One significant consideration for advisors considering a switch to an RIA is regulatory. Those who fully transition to the RIA model will dump FINRA for the SEC. But whether that’s an advantage or downside to the transition is open for debate.

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 advisory business in Advisor’s Journal, see Is a Hybrid Practice Model Right for You? (CC 11-46) & Advisors’ Stairsteps of Influence (CC 11-49).

FINRA is continuing its recent power-grab in the face of a largely impotent and underfunded Securities and Exchange Commission. As the next stage in an ever-escalating series of regulations and information reporting requirements, plans are in the works for a new-and-improved examination program that could further increase the information reporting requirements of member firms and significantly increase their compliance burden.

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 regulatory action in Advisor’s Journal, see Broker Bonus Arbitration Bottleneck Forces FINRA to Reconsider Arbitrator Qualification Standards (CC 11-08),  SEC Approves FINRA Suitability and Know-Your-Customer Rules (CC 11-17), & New FINRA Rule Restricts Brokers’ Outside Business Activities (CC 10-110).

Republicans on the House Financial Services subcommittee are pushing back on the issue of Registered Investment Advisor user fees, citing the cost to small businesses. But the SEC insists that it cannot conduct adequate RIA examinations without either charging user fees or delegating examination authority to an SRO that will charge user fees. The argument over user fees was prompted by the release, earlier this year, of the Dodd-Frank mandated SEC study on enhancing RIA examinations. 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 recent SEC rulemaking in Advisor’s Journal, see SEC Unprepared to Implement a Fiduciary Standard for Broker-Dealers (CC 11-33), SEC Fiduciary Standard Study Answers Few Questions (CC 11-25), Study Finds that Universal Fiduciary Standard Will Hurt Investors (CC 10-97) & What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10-40).

The SEC has finally released its Dodd-Frank mandated study on enhancing registered investment adviser (RIA) examinations, but the study is more a tale of SEC budgetary distress than a concrete plan to improve examinations. Although the study hints at the regulatory framework that is likely to emerge for RIAs in the coming months, it doesn’t conclude with a definitive solution to the problem. Although the study does not conclude with a specific plan for improving adviser examinations, the scope of the RIA examination problem and the funding problems revealed make it clear that change is coming for RIAs—change likely to be paid for by increased user fees.

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).

The SEC recently approved FINRA proposed rules—FINRA Rules 2090 and 2011—that amend and consolidate know-your-customer and suitability obligations for broker-dealers and their authorized representatives. The new rules are based on, and replace in-part, similar NYSE and NASD rules. According to FINRA, the amended know-your-customer and suitability rules are intended to protect investors by “promoting fair dealing with customers and ethical sales practices.”

The new rules are effective as of October 7, 2011.  For previous coverage of the suitability standard and the debate over the proposed fiduciary standard in Advisor’s Journal, see What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10-40) and Study Finds that Universal Fiduciary Standard Will Hurt Investors (CC 10-97).

Under the know-your-customer rule, firms are required to use reasonable diligence respecting the opening and maintenance of every account and to know essential facts about every customer. “Essential facts” are facts required to …. 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).

Brokerages are increasingly looking to claw back signing bonuses from bonus baby brokers who leave for another firm. Signing bonuses at the big broker-dealers saw a big jump in 2008, just as the economy took a dive. Signing bonuses of up to $3 million were being offered to brokers who generated $1 million in commissions and fees in the prior year. And a few bonuses paid at Wall Street firms were reported to have been as high as $10 million. But because many of the bonuses were based on the prior year’s inflated numbers, brokerage firms ended up paying too much for too little performance during an economic slowdown.

Now a bottleneck is developing in arbitration cases dealing with brokers’ signing bonuses, forcing FINRA to reduce the qualifications for persons serving as arbitrators in order to expand its rolls and push the cases through the system. About 1,100 bonus cases have been filed by brokerages as of December 12, compared to just 415 cases in 2008. About 17 percent of 2010 FINRA arbitration cases were bonus-related cases.  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 broker and securities arbitration in Advisor’s Journal, see FINRA Proposes Eliminating Industry Insiders from Arbitration Panels (CC 10-80) and Mandatory Securities Arbitration Clauses on the Chopping Block (CC 10-48).

The Securities and Exchange Commission (SEC) is moving ahead with a plan to use public accountants to examine auditors of broker-dealers.  Under current rules, although broker-dealers that control client assets are required to assign auditors to ensure that the broker-dealers’ reports and financial statements are accurate, those auditors are not subject to direct oversight or inspections.  The new rules will assign responsibility for broker-dealer auditor oversight and inspection to the Certified Public Accounting Oversight Board (the Board).  Read this complete article 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 coverage of recent developments in the regulation of broker-dealers and RIAs in Advisor’s Journal, see What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10 40) and FINRA Positions Itself to Oversee Advisers (CC 10-99).

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