Yesterday I pointed out the fiduciary duty obligations laid out in the SEC’s new release. The other half of the release is a request for comment on three new proposals to enhance investment adviser regulation.
- Federal Licensing and Continuing Education
- Provision of Account Statements
- Financial Responsibility
The SEC notes these as areas where the broker-dealer framework provides investor protections that do not have counterparts in the registered investment adviser framework.
Federal Licensing and Continuing Education
The federal securities laws do not impose licensing or qualification requirements on investment advisers. Broker-dealers, through FINRA, are subject to licensing, qualification, and continuing education requirements. The first question of should RIA reps be licensed seems like a done deal. I believe the SEC is looking for comments on the requirements, avoiding duplication for dual-registered personnel and the exam process. I assume that FINRA is going to step in and take over this process.
Provision of Account Statements
I found this request to be a bit strange. Broker-dealers have to send account statements and transaction confirmations. Registered investment advisers rely on the custodian to do this.
From my perspective, the SEC also needs to focus on how these additional deliveries would work for non-retail investment adviser clients, like private funds.
Financial Responsibility
Broker-dealers are subject to capital requirements. The firms need to have minimum levels of net capital and liquidity. Of course, broker-dealers are holding customer assets directly while investment advisers have the client assets with a qualified custodian.
I suspect any of these proposals would have a big impact on smaller registered investment advisers. I thought the Custody Rule was supposed to address these concerns.
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