Fiduciary Links: SEC Taking Closer Look at Custody Issues Due to Early Findings
Posted by fi360 Team on March 11, 2013
>>>The SEC issued a risk alert last week that highlights a number of deficiencies under the Advisers Act custody rule that have been encountered as part of recent adviser examinations (see the InvestmentNews summary). These include a number of scenarios where the adviser doesn’t realize that it has custody, failing to file for an annual surprise audit of custody practices, client notification problems, commingling problems, problems with audit procedures, and other problems.
From an investor protection standpoint, the SEC is mostly concerned with stopping any new Madoffs from happening by keeping a closer eye on who has access to client funds and that they are being directed properly. For the most part, the violations have been procedural and without any fraudulent intent. Therefore, most of the actions have amounted to simple warnings and directives to beef up procedures.
In addition to the compliance standpoint of simply being aware that the SEC is looking for these issues, advisors should also consider the broader ramifications of not paying close enough attention to the custody rule. If something were to go wrong with a portfolio due to inadequate custody procedures, advisors could find themselves with more liability than they bargained for. Having custody can give rise to fiduciary status and an obligation to closely monitor investor assets. In the case that an advisor doesn’t even realize it has custody, this obviously presents a significant problem in the event that proper protection of assets comes into question.
Alongside the risk alert for advisers, the SEC also released an investor bulletin that provides guidance to investors on ensuring that custody is handled appropriately by advisors and service providers. Assuming you are taking the right steps to comply with the custody rule, it might be worth sharing this bulletin with your clients and prospects to demonstrate your professionalism.
>>>We repeat this every so often on the blog and on our advocacy page, but contacting your representatives in Congress about the issues that matter most to you does work. This article from InvestmentNews last week credits constituent feedback as a major influence for shelving SRO legislation for the time being. The SRO issue will probably arise again at some point, as will other financial and fiduciary reform efforts, so stay informed and make the effort of letting your representatives know how you feel.
>>>A couple of reminders that we’ll be repeating the next few weeks: 1) If you haven’t already done so, please take a few minutes to complete the fi360-AdvisorOne Fiduciary Standard Survey, which asks advisors of every ilk about their understanding of and feelings about the fiduciary standard; and 2) the submission period for the fi360 Designee Article Competition is now open. If you are an AIF or AIFA Designee and have an interesting in writing about fiduciary topics, submit your article for a chance to win $1,000, be honored at the fi360 Conference in April, and be published by AdvisorOne.
News and columns from the leading trade, consumer and mainstream media:
- Cold calls are on their way out as plan sponsors turn to peer referrals to find advisors, according to research from Franklin Templeton Investments. If advisors do their homework, and understand the culture and needs of the company they approach, they will have a much greater chance to succeed. [Investment News]
- DOL's fiduciary proposal could rankle reps. The proposal, if passed, is expected to impose a higher stand of care on brokers, by requiring them to disclose a very plain disclaimer to their clients that the brokers aren't fiduciaries. [Investment News]
- The SEC steps in as dually registered advisor's assets grow, and di Florio says the agency is uncovering a lot of challenging issues with dually registered advisors.[AdvisorOne]
- Mary Jo White hearing set for March 12 to consider her nomination as the next chairwomen of the SEC. Her arrival at the agency puts a big question mark on how the agency will move forward with the agency rule. [AdvisorOne]
- Information interviews can help new advisors find their niche, and when well-crafted, can help to build a successful business.
From the organizations/associations/government/academia:
- The SEC issues risk alerts and investor bulleting on Investment Adviser Custody Rule. The Rule is designed to protect advisory clients from theft or misuse of their funds and securities. Read the bulletin here. [SEC]
- The SEC releases an investor bulletin covering the ins and outs of investing in an IPO. [SEC]
- The SEC proposes rules to improve systems compliance integrity [SEC]
- DOL released a bulletin for ERISA’s annual funding notice requirements following the Moving Ahead for Progress in the 21st Century act. [DOL]
- DOL fact sheet for target date retirement funds, tips for ERISA plan fiduciaries. [DOL]
From the blogs:
- Social Security speak has advisors lost in translation. A careful look at the difference between 'file and suspend' and 'voluntary suspension. [Retirement 2.0, Investment News]
- Why 401(k) investors chase performance, and how to prevent it. The primary reason for chasing performance is lack of education and training, but it can prove dangerous for clients. [Fiduciary News]
- Pensions as a moral issue, and the role ERISA can play: addressing the problem that retirement funds are inadequate to most people's retirement goals. Pension funding is a substansial problem - being teh dianors of the retirement plan world. [Boston ERISA Law]
What your clients are reading:
- Happily ever after? Couples fight five times a year, on average, about finances. A recent survey by TD Ameritrade Inc., found that many couples don't consider finances a high priority when getting married, but it becomes a problem later in the marriage. [Investment News]
- For tax identity thieves and phishers, business is booming. According to the National Taxpayer Advocate's 2012 annual report to Congress, ID theft is mushrooming into a far bigger problem in the tax arean that many taxpayers suspect.[AdvisorOne]
- The high cost of fee-based financial advisors: a hard look at the numbers, and how it can impact clients. [The Investment Fiduciary]
