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April 28, 2009 |
More Exams Of Advisors Expected |
What increased regulation is coming down the pike for investment advisors? Securities and Exchange Commission Chairman Mary Schapiro has been dropping hints at various forums, and other experts are already analyzing what advisors can expect.
Schapiro has said in not to the too distant future, the SEC will propose those with custody of client assets undergo an annual third-party audit, on an unannounced basis, to confirm the safekeeping of those assets. She’s also mentioned “harmonizing the responsibilities of investment advisers and broker-dealers.”
Current market conditions and the on-going criminal investigations of financial advisors and money managers have shifted the areas of interest for the SEC and FINRA, and advisors need to know how to comply with regulations in these changing times, says David Rosedahl, partner, Briggs and Morgan, P.A., a Minneapolis law firm.
Examinations of all types—whether they are routine, surprise or investigatory—have changed radically to emphasize sales of products to senior citizens and new products, as well as the practices relating to the sale of those new products, adds Michael Burns, chief compliance officer for PrimeVest Financial Services Inc. in St. Cloud, Minn. Seniors are important to regulator now because of their growing numbers and their lack of time to make up financial losses after they occur.
The two financial experts were panelists in a recent Webinar sponsored by the Financial Services Institute designed to help advisors and money managers comply with exams by the SEC and FINRA.
“Regulators are very good at communicating what they are concerned about,” says Burns. “This means firms can manage their relationship with the examiner and establish a good rapport, at the same time they protect themselves and clients,” adds Rosedahl.
Since the Madoff scandal, regulators are focusing on custody and making sure reports to clients are accurate. Advisors and managers are usually good at their primary job, but sometimes not good at delivering reports, Rosedahl says. A firm that engages an independent custodian will have some protection from inadvertently violating regulations because a second independent person will be looking at the transactions and reports.
Branch offices are going to be the targets of more exams than they were in the past, and headquarters offices will be subject to more intense scrutiny as the financial culture changes and technology used by regulators continues to improve, he adds.
In a recent statement Shapiro notes that the SEC oversees approximately 5,500 broker-dealers;11,000 investment advisors; 8,000 mutual funds, the stock and options exchanges; clearing agencies; transfer agents; credit rating agencies; and many others. Including public companies filing with the SEC, the agency has oversight responsibility for far more than 30,000 entities.
She adds the SEC is looking at reforms that include:
• Requiring those with custody of client assets to undergo an annual third-party audit, on an unannounced basis, to confirm the safekeeping of those assets.
• Harmonizing the responsibilities of investment advisers and broker-dealers, so that investors who use either can expect a uniform level of professionalism and accountability.
• Mandating that certain investment advisors have third-party compliance audits to ensure their compliance with the law.
• Registering hedge fund advisers, and potentially the hedge funds themselves.
• Requiring more disclosure from credit rating agencies, including potentially the assumptions underlying their methodologies, fees received from issuers, and factors that could change ratings.
• Overseeing more vigorously the credit default swap market, including considering reporting and recordkeeping rules that do not exist today.
• Enhancing the standards applicable to money market funds.
• Providing investors in municipal securities with the same type of disclosure and investor protections as are provided to investors in other securities.
• Enhancing disclosure around asset-backed securities. |
More Exams Of Advisors Expected |
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