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Where the rewrite of financial regs stands relating to RIAs

The stakes are high and the outcome is still uncertain; here's what we know

Author Alex Potts Guest Columnist September 30, 2011 at 3:07 PM
1 Comment
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Alex Potts: One thing is certain. This battle will continue at least through the end of this year.

RIA Compliance

Jeff McClure

Jeff McClure

September 30, 2011 — 4:31 PM

It seems to me that there is a simple set of solutions here, based on what is happening in the real world.

First, eliminate the term “Financial Adviser.” I am not sure what that means, it is not in any way defined or regulated, and it confuses the issue. A person is either a broker, operating under the Suitability Standard or is an investment adviser and is bound by the Investment Advisers Act of 1940, i.e. is a fiduciary.

Second, give FINRA the authority and responsibility to regulate dually registered BD/RIA firms. My experience is that the vast, vast majority of firms and representatives of those firms that have added an RIA activity to their broker/dealer business have absolutely no intent of being held to a fiduciary standard. From their perspective being an “adviser” simply is a means of increasing revenues and achieving discretionary authority in customer accounts.

Third, get serious about regulation and inspection of the independent RIAs. My observations indicate that there are an abundance of supposedly registered investment advisers who have submitted a form ADV, but are anything but fiduciaries. I recently had an acquaintance from my Rotary Club who asked me to look into an “RIA” who was asking to speak to our club. A little research determined that the supposedly “federally registered investment adviser” was well over a year into the 120 day exemption from state registration and had actually submitted a new ADV this year claiming to have no money under management! The agency doing the advertising (owned by the “RIA”) was the claimed “federally registered” adviser but in fact was an unregistered DBA used as an advertising vehicle to sell annuities and life insurance as well as offering to manage and hold investments for members of the public.

I contacted the Texas Securities Commission and was told that as the person was registered with the SEC they would not look into it. I called the SEC and was told that since the 120 days had expired it was the state’s responsibility.

In short regulation and supervision of this person (who appears to actually be accumulating money without a custodian) is non-existent. It is a simple process to do an internet search for persons and firms claiming to be advisers except that the search turns up so many “advisers” who are unregistered that it becomes overwhelming. It is quite impressive to me that a person can submit an ADV to the SEC, claim to be an adviser and have absolutely no oversight if they state they have no money under management. It is no wonder that Madoff got away with it for so long.

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March 13, 2024 at 1:46 AM

Mentioned in this article:

Buckingham Strategic Partners
TAMP, Asset Manager for RIAs
Top Executive: Alex Potts

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