At an investment adviser compliance seminar last month, Securities and Exchange Commissioner Luis Aguilar called on Congress to impose the same standard of care that applies to investment advisers to all financial intermediaries. He also wants improvements made to the SEC’s examinations program.
Aguilar objects to an internal policy that does not let examiners question registered firms about unregistered affiliates even if the businesses are related. While the Office of Compliance, Inspections and Examinations had been able to ask these kinds of questions in the past, there was a change of policy in 2007. Now, examiners must get past a number of “hurdles” to ask questions. Aguilar is also recommending that Congress take steps to clarify that examiners can ask for unregistered affiliates’ records.
Aguilar disagrees with the approaches taken with the House and Senate financial regulatory reform bills that harmonize the discrepant standards that govern broker-dealers and investment advisers. While the 1940 Investment Advisers Act places a fiduciary duty on advisers, it exempts brokers from having to comply. He says that this allows for “divided loyalties” that aren’t in the clients’ best interests.
Aguilar is against the harmonization approach found in the Wall Street Reform and Consumer Protection Act. The bill evens out the standard for brokers and advisers that give clients “personalized” investment advice. By limiting the applicability of the standard in this way, Aguilar says that many investors would be left without protections. He also noted that institutional investors need protection too.
Aguilar believes that enforcement is key to protecting investors. He notes that while the number of advisers has grown in the past years, the SEC’s capacity to inspect them has been reduced. He said that allowing self-funding, which the Senate bill proposes, would be the “most transformational act” that Congress could elect to make.
Related Web Resources:
Office of Compliance, Inspections and Examinations
Aguilar Urges Congress to Extend Fiduciary Duty, Clarify OCIE’s Power, BNA – Broker/Dealer Compliance Report/Alacra Store, March 31, 2009
At Shepherd Smith Edwards & Kantas LTD LLP, we believe that investment advisers and broker-dealers should be protecting investors. Over the years, we’ve dedicated our securities fraud practice that making sure that our clients get back the investments they lost because of broker-dealer and investment adviser misconduct.