Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Broker-dealer’

FINRA Sets Regulatory Sights on Structured Products

Posted by William Byrnes on January 11, 2012


The Financial Industry Regulatory Authority (FINRA) is targeting structured products over concerns about unsuitable sales to retail customers. In an exclusive interview with AdvisorOne (a Summit Business Media product) Bradley Bennett, enforcement chief at FINRA, said that the agency’s caseload on the recent financial crisis has eased up, and the agency is ready to renew its focus on structured products.

Structured products are often marketed to retail customers without an adequate explanation of their associated risks.  “They purport to give the alchemy of lowering risk while increasing yield,” Bennett said, “but the risk needs to be explained” both to the broker-dealer’s “sales force and customers, and be suitable given the customer’s financial circumstances.”

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of structured products in Advisor’s Journal, see SEC Warns Investors about Principal Protected Notes (CC 11-117).

For in-depth analysis of structured products, see Advisor’s Main Library: 7774. What is a structured product? How are structured products taxed?

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The Pitfalls of Transitioning Between Firms

Posted by William Byrnes on August 26, 2011


If you’re considering transitioning your book of business to a new firm, maintaining the confidentiality of client information should be your principle concern. Accomplishing  a move without becoming the target of a lawsuit can be a daunting task. However, there is a protocol of best practices that if followed correctly can significantly lower the risk of violating confidentiality.

In 2004, three wirehouses – Citigroup Global Markets, Inc. (“Smith Barney”), Merrill Lynch, and USB Financial Services, Inc. – created the Protocol for Broker Recruiting (the “Protocol”). The Protocol’s objective is to protect clients’ privacy and flexibility when choosing Registered Representatives (“RRs”) – especially RRs who are switching firms. By reducing litigation over RRs transitioning to new firms, the high costs associated with competitive recruiting efforts can be minimized and client information can remain protected.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

For previous coverage of broker-dealer issues in Advisor’s Journal, see  Is a Hybrid Practice Model Right for You? (CC 11-46), What’s Driving the Increasing Appeal of the RIA Model? (CC 11-69).

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Are Portfolios-To-Go Threatening Your Business?

Posted by William Byrnes on August 13, 2011


The value that consumers place on traditional portfolio managers seem to be rapidly changing. A growing number of consumers are opting for pre-packaged, low-cost portfolio managers. Portfolio-to-go companies can, at least nominally, provide many of the same services as full-service brokerage firms, since the companies are registered as either investment advisors or broker-dealers. Minimal overhead and services allow portfolio managers flexibility to offer those services without the “high” price tag at brick-and-mortar institutions. Portfolios-to-go have seen a surge in popularity recently, bringing in over $3 billion in assets over the past three years. In a world where post-recession fears have almost everyone bargain shopping, are online portfolios-to-go the Walmart of investing, set to dominate the market and phase out traditional wealth managers? Or are these pre-packaged portfolios an opportunity in disguise?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

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What’s Driving the Increasing Appeal of the RIA Model?

Posted by William Byrnes on August 4, 2011


A large majority (86%) of advisors who are with an independent broker-dealer find the idea of life at an independent registered investment advisor (RIA) appealing, according to a Schwab Advisor Services study released on March 29th. And when the advisor knows someone who has already made the switch, the number who like the idea of making a move to the RIA model jumps to 95%.

One significant consideration for advisors considering a switch to an RIA is regulatory. Those who fully transition to the RIA model will dump FINRA for the SEC. But whether that’s an advantage or downside to the transition is open for debate.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

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SEC Moves to Require Full of Disclosure of Incentive-Based Compensation

Posted by William Byrnes on July 15, 2011


Investment advisors and broker-dealers may be required to disclose their incentive-based compensation programs under proposed rules approved by the Securities and Exchange Commission (SEC) on March 2. The proposed rule is the latest in a series of advisor and broker-dealer reporting rules issued under the mandate of the Dodd-Frank Wall Street Reform Act.

The rapidly increasing compliance obligations for advisory firms and B-Ds has the capability to drastically modify business practices at affected firms. Many will be forced to reconfigure their entire compensation program to comply with the new rules.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of advisor reporting requirements in Advisor’s Journal, see Advisors Hit with Another Round of SEC Reporting Rules (CC 11-30).

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New Proposed Rules for Broker-Dealers and Investment Advisers

Posted by William Byrnes on May 3, 2011


The SEC recently considered a proposal that would prohibit incentive-based compensation practices that may encourage inappropriate risk.

The proposal arises from Section 956 of the Dodd-Frank Act, which requires the SEC along with six other financial regulators to jointly adopt regulations or guidelines governing the incentive-based compensation arrangements of certain financial institutions. These institutions include broker-dealers and investment advisers with $1 billion or more of assets.

In particular, the Dodd-Frank Act calls upon the regulators to do two things:  Read the analysis at AdvisorFYI

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SEC Unprepared to Implement the Fiduciary Standard for Broker-Dealers

Posted by William Byrnes on March 28, 2011


Broker-dealers will be subject to a fiduciary standard of care no earlier than the second half of 2012, predicts Richard Ketchum, Chairman and CEO of the Financial Industry Regulatory Authority (“FINRA”).  Mr. Ketchum’s remarks come a week after SEC chairman Mary Schapiro said that the SEC has “a lot of work to do” before putting “pen to paper” and writing the fiduciary standard rules.

Causes of the delay were hinted at by a pair of reports issued by the SEC last month, one of which concluded that broker-dealers and registered investment advisers (“RIA”) should be subject to the same fiduciary standard of care. The other report provided recommendations for improving the examination of investment advisors, concluding that a Self-Regulatory Organization (“SRO”) should be appointed to conduct examinations of investment advisors. An SRO is a private organization that is granted some regulatory authority over a particular industry. SROs are typically funded by member user fees.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the fiduciary standard in Advisor’s Journal, see SEC Fiduciary Standard Study Answers Few Questions (CC 11-25)Study Finds that Universal Fiduciary Standard Will Hurt Investors (CC 10-97) and What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10 40)

Your questions and comments are always welcome. Please post them below or call the Panel of Experts.

 

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SEC Fiduciary Standard Study Answers Few Questions

Posted by William Byrnes on March 13, 2011


The SEC has finally released its anxiously awaited study of whether a fiduciary standard of care should be applied to broker-dealers; but, like the study on adviser examinations, the report leaves as many questions as it answers. The fiduciary standard study recommends that brokers be held to the same standard as register investment advisers (RIAs).  Although the study doesn’t provide details on how the switch to the fiduciary standard will be implemented, there are hints as to what brokers can expect.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the fiduciary standard in Advisor’s Journal, see Study Finds that Universal Fiduciary Standard Will Hurt Investors (CC 10-97) and What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10 40).  Comments are welcome below.

 

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SEC Approves FINRA Suitability and Know-Your-Customer Rules

Posted by William Byrnes on February 26, 2011


The SEC recently approved FINRA proposed rules—FINRA Rules 2090 and 2011—that amend and consolidate know-your-customer and suitability obligations for broker-dealers and their authorized representatives.  The new rules are based on, and replace in-part, similar NYSE and NASD rules. According to FINRA, the amended know-your-customer and suitability rules are intended to protect investors by “promoting fair dealing with customers and ethical sales practices.”

The new rules are effective as of October 7, 2011.  For previous coverage of the suitability standard and the debate over the proposed fiduciary standard in Advisor’s Journal, see What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10-40) and Study Finds that Universal Fiduciary Standard Will Hurt Investors (CC 10-97).

Under the know-your-customer rule, firms are required to use reasonable diligence respecting the opening and maintenance of every account and to know essential facts about every customer. “Essential facts” are facts required to …. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

 

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New Dodd-Frank Study Calls for Stringent Standards

Posted by William Byrnes on February 21, 2011


The Securities and Exchange Commission (SEC) submitted to Congress a staff study recommending a uniform fiduciary standard of conduct for broker-dealers and investment advisers — no less stringent than currently applied to investment advisers under the Investment Advisers Act of 1940– when those financial professionals provide personalized investment advice about securities to retail investors.

Section 913 of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required SEC to conduct a study to evaluate:

  • The effectiveness of existing legal or regulatory standards of care (imposed by current authorities) for providing personalized investment advice and recommendations about securities to retail customers; and
  • Whether there are legal or regulatory gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for providing personalized investment advice about securities to such customers that should be addressed by rule or statute.

In the study, the SEC notes that investment advisers and broker-dealers are regulated extensively under different regulatory regimes.  But, the study claims, many retail investors do not understand and are confused by the roles played by investment advisers and broker-dealers.  The study finds that “many investors are also confused by the standards of care that apply to investment advisers and broker-dealers” when providing personalized investment advice about securities.  Read the analysis at http://www.advisorfyi.com/2011/01/new-dodd-frank-study-calls-for-stringent-standards/

 

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Study Finds that Universal Fiduciary Standard Will Hurt Investors

Posted by William Byrnes on December 6, 2010


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The Wall Street Reform Act1—signed into law by President Obama on July 21, 2010— grants the SEC the power to impose a fiduciary duty on broker-dealers. Although the SEC has not yet moved to apply the fiduciary standard—already applicable to registered investment advisors—to broker-dealers, both sides of the argument have made their voices heard, commissioning studies and sending volleys of comments to the SEC.

Holding broker-dealers to a higher standard would seem, at first glance, to be a positive for their customers.  But a November 1, 2010, Securities Industry and Financial Markets Association (SIFMA) commissioned study calls into question whether applying a fiduciary standard of conduct to all brokerage activities would help investors.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the fiduciary standard of conduct in Advisor’s Journal, see What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10 40).

We invite your questions and comments by posting them below or by calling the Panel of Experts.

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