Managing risk and government regulations were the hot topics in the halls of the recent TD Ameritrade Institutional conference in Orlando, Fla.

Fred Tomczyk, president of TD Ameritrade, says the conference had a record 1,200 attendees. A highlight of the event was a keynote discussion by former U.S. Presidents George W. Bush and Bill Clinton.

TD Ameritrade now has 3,000 independent advisors managing more than $27 billion in assets, Tomczyk says, and assets under management through advisors have been growing at nearly 10% annually since 2007.

One of five of TD Ameritrade's daily trades, which include retail and institutional investors, involve options, Tomczyk reports. Most frequently, investors are selling cash-secured puts to establish long stock positions which allow them to buy a security at a price lower than its current trading level. They also are selling covered call options against long positions in exchange-traded funds and stocks to improve performance. The income from the call options cushions losses if the market declines. However, on the upside, the securities can be called away by other investors. Advisors also are selling index-tracking exchange-traded credit spreads to enhance client overall portfolio return. This is accomplished by taking the dollar amount invested in a stock mutual fund and offering that dollar value against the notational value of a specific listed index product.

On the investment side, a number of absolute-return fund managers made the case for their open-end mutual funds. These funds may help advisors obtain better risk-adjusted rates of return by reducing portfolio volatility since their performances are independent of the equity and bond markets. Only time will tell if the fund managers achieve their goals over longer term investment cycles.

Clifford Asness, managing partner and founding principal of the AQR Funds, Greenwich, Conn., presented research showing that an investment in a diversified portfolio of futures based on short-term, intermediate-term and long-term trends registered a positive alpha value of 0.4 from 1985 through 2009.  His new AQR Managed Futures Strategy Fund, for example, invests in a portfolio of futures contracts and related instruments utilizing more than 50 contracts across four major asset classes. Those include commodities, currencies, fixed income and equities. The fund can take long or short positions in any of these assets and seeks to benefit if the price of the investments rises or falls.

On the regulatory front, there is a crackdown on keeping client information private.  You had better be getting confidentiality agreements from staff, outside vendors, cleaning staff, guards and others with whom you might share offices, suggests Thomas D. Giachetti, chair of the securities practice group at Stark & Stark attorneys at law, Lawrenceville, N.J.

On an audit, offer no more than you must.  "Many are doing a lot of stuff you don't need to do," he counsels.

Pay your lawyers a fee for service-not for anticipated needs. Evaluate carefully what you get for the fee. Better to pay a higher fee and get an immediate response to your question, than a lower fee, with the attorney taking an undefined amount of time to research it.

Consulting firms and attorneys can help with compliance. However, Giachetti says, only discuss client information with attorneys, so that you are protected by attorney-client privilege. Don't talk about firm business on Facebook either.
Investment policy statements often are too long and say way too much, he says. Most important are restrictions and clear definition. Be sure you define words like "moderate" or "conservative."  "The SEC hates hypotheticals." If a client with a discretionary account calls you and wants you to liquidate to cash, ask them to do it in writing.

The trend is toward the elimination of commissions, says Blaine Aikin, CEO of fi360, Bridgeville, Pa., which provides educational training and issues the Accredited Investment Fiduciary (AIF) and Accredited Investment Fiduciary Analyst (AIFA) designations. The SEC says it will review whether 12b-1 fees should be eliminated.

SEC funding will double in the next five years, he says, going toward its anti-fraud unit and whistle-blower program.

"Be very careful about how you construct your business," he advises. "Look at business in the context of fiduciary principles."

The highlight of the conference was a keynote discussion by former Presidents Bush and Clinton.  According to attendees, they touched on a number of topics including global terrorism, health care reform and regulatory reform.

Bush says you can't regulate out moral hazard in the business world. He said there should be strict limits on asset-backed securities to prevent the problems of the past. And he believes it is the responsibility of corporate boards of directors, particularly on Wall Street, to make sure executive compensation and bonuses are appropriate.

"There has to be moral hazard," he says. "If a company makes a mistake, it should fail. I had to swallow my ideology (before the election last year) because the financial collapse would have been worse than The Great Depression,"  Bush says.

Clinton agreed that weak businesses should fail. But he stresses that bank and securities regulators must do their jobs, and he supported both the bailout bill and Fed Chairman Ben Bernanke's reconfirmation. He likes the idea of having the U.S. Treasury set aside funding to guarantee a program, similar to the Small Business Administration, for energy retrofits on buildings. Under such a program, banks would loan money to small business.

Both presidents criticized protectionism, and Clinton acknowledged his Democratic party was making a mistake to blindly move in that direction. Clinton cited free trade as having important political benefits for the United States, such as influencing the current Mexican president to send soldiers to keep the drug cartel away from the United States. Bush cites India's vast middle class of 350 million people as a desirable market for U.S. goods and services.