On Nov. 22, 2013, the SEC's Investment Advisory Committee adopted the following recommendations that were proposed by the committee’s Investor-as-Purchaser Subcommittee.
Registered Investment Advisor Exams
The SEC should ask Congress to pass legislation allowing the SEC to assess a fee on registered investment advisors (RIAs) to fund a more expansive RIA examination program. The main concern raised during the committee's discussion was that retail investors will end up paying the fee imposed if Congress were to pass the requested legislation. While this concern was acknowledged as being valid, the subcommittee pointed out that 40% of all RIAs have never been examined by the SEC. Therefore, retail investors would be better protected if more RIAs are examined on a regular basis (even though they are ultimately paying for the exams). The goal (as expressed by the subcommittee's chair during the meeting) is that 25% of all RIAs would be examined by the SEC on an annual basis.
Broker Dealer Fiduciary Status
This recommendation has two parts (for background, see this post from last month). First, the SEC should issue rules imposing a fiduciary duty on broker dealers when providing "personalized investment advice to retail investors." Second, the SEC should create a plain-English, uniform "pre-engagement" disclosure document to be provided by broker dealers and investment providers to customers and potential customers "that covers basic information about the nature of services offered, fees and compensation, conflicts of interest, and disciplinary record." Surprisingly, there was comparatively less discussion among the committee members regarding this recommendation prior to it being unanimously adopted.
The committee was also informed about a potential recommendation from the Market Structure Subcommittee regarding decimalization. In short, the proposal would recommend that the SEC test raising the "tick size" (the smallest increment by which the price of stocks, futures contracts or other exchange-traded instruments can move) from $.01 to either $.05 or $.10. Due to scheduling issues at the subcommittee level, this recommendation was tabled and will be considered at the committee's Jan. 31, 2014, meeting.
NAPA and ASPPA will continue to monitor the activities of the Investment Advisory Committee and its subcommittees, as well as any action the SEC takes on the recommendations that were adopted by the committee.
Ronald J. Triche, Esq., APM is the Assistant General Counsel and Director of Government Affairs of ASPPA.
