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Compliance

Form CRS: Prop or Flop?

After all the hype and noise about Form CRS, which was first required to be issued this summer, it appears that the intended audience – investment clients – are generally uninterested in the new disclosures and not engaged in the process of asking questions of their advisers. Research shows that almost no-one who received the new form, among the tens of thousands of clients who did, raised any issue or question with their advisor regarding Form CRS and its use.
Not surprisingly, this logically fits in with the response of clients to required disclosures generally: adding a few new pages with a somewhat different approach to the pile does not engender interest in persons already overwhelmed with information and fine print (much of it irrelevant and/or confusing).

Is Best Interest Really Best?

Much of the discussion surrounding the best interest rule has referenced the requirement that investment advisers are fiduciaries to their clients while brokers are not held to that fiduciary standard. Regulation Best Interest and the new customer relationship summary are intended to provide investors with a clear description of the duties and obligations of investment advisers, broker-dealers and dually registered persons and firms. Not surprisingly, this new approach is not meeting with universal approval and acclaim.

State Specific Fiduciary Rules: How Far May They Go?

With the failure of the DOL Fiduciary Rule and the sluggish pace of the SEC Best Interest proposal, many states are looking at taking their own steps towards strengthening the rules for investment professionals so as to provide more protection for consumers of investment advice and related activity. This state action is receiving mixed reviews for a variety of reasons.
Apart from the polar opposites of the rules are not strong enough and the rules are too limiting for investment professionals, there are other important concerns.

The Importance of Formal Work Place Processes

An established work flow and process is critical to the smooth functioning of almost any business and the financial advice business is no exception. All too often, a business gets started and the founders do not take the time to fully work through how the recurring tasks should be planned out to ensure both consistency and thoroughness. When it becomes apparent that one needs to get a solid process in place, it is often too late to get it done easily and without interfering with the necessary day to day tasks.

Major Hurricane: Business as Usual?

Whether it is wildfires on the West Coast, ice and snow in the Middle West, or tropical storms in the Southeast, one common thread is the questionable nature of business continuity in the face of nature’s force. Regulators, seeing the potential disruption of the financial industry and harm to its clients in such cases, have made it a priority to require advisory firms to put in place comprehensive plans for disaster recovery and business continuity.
Leaving aside for the moment the question of how many clients, caught in the throes of a natural disaster, would be focused on the details of an aspect of their financial plans or desirous of making a specific trade, the pertinent question may be how would one ensure that any such client requests could be handled promptly and effectively whatever the weather.

Best Interest and Bureaucracy

Amidst the plethora of bureaucratic rule making, it is common to hear the regulated complaining about the burdensome nature of the seemingly endless rules. The amount of time and energy – and so expense – which goes into compliance seems to increase almost daily. The public, the pundits and of course the regulators themselves all seem to shrug off those complaints as if they were merely sour grapes and without any real meaning. Meanwhile, those in the industry continue to seek clarity and simplicity.

Advisers and Social Media

For some time now, advisers have been exhorted to make use and more use of social media. If they don’t, they are told, they will fail and lose clients and potential clients. In response, we have seen an increasing use of social media by advisers, including the recent “authorization” to use Twitter media. All to the good, perhaps, but it may be wise for advisers to exercise a bit of restraint and caution.
First, think about the headlines of late and the increasing number of persons whose statements on Twitter have gotten them fired from a job, deprived of opportunities and castigated by the responses of others on Twitter and other social media.

Fees, Bond Markups and Other Advisor Charges

Advisor charges for the various services they provide investors have always been important to investors, regulators and the advisors themselves. The recent headlines about best interests, fiduciary duty, lawsuits over 401(k) fees, required disclosures to investors and more have had their central focus on how advisors make their money. The most recent development in this area is the new rule requiring brokerage firms to start disclosing some of the fees they charge their clients to purchase or sell municipal bonds.

New SEC "Best Interest" Rule

The Securities and Exchange Commission has proposed what it terms a Best Interest Regulation which is to govern how broker/dealers interact with their customers. A distant parallel to the current discussion about the Department of Labor’s Fiduciary Rule, this proposed regulation does not change the dichotomy in treatment of registered investment advisers versus brokers who are subject to the SEC.  In other words, different rules will still apply to these two different groups.
Perhaps the biggest change is the institution of a “best interest” standard for brokers when interacting with retail customers/investors.

Helping to Prevent Senior Financial Abuse

One of the high priorities for the SEC announced in 2017 was the growing recognition of problems with the financial abuse of senior citizens. Given the close relationship with client money held by brokers and investment advisers, it makes sense to get those persons involved with their older clients from the standpoint of the potential for abuse by others.
An elderly person may not always be aware or understand when they are being taken advantage of by another person, whether because of reduced capacity, misplaced trust, or even manipulation.
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