Don't shoehorn advisers into broker regulations: IAA

In comment letter, Investment Adviser Association criticizes SEC advice rule for net capital, account statement and licensing requirements

Aug 3, 2018 @ 1:43 pm

By Mark Schoeff Jr.

A leading trade group representing investment advisers is urging the Securities and Exchange Commission to abandon its proposal to impose some regulations on advisers that are similar to those governing brokers.

As part of its investment advice reform package, the SEC is proposing that investment advisers registered with the agency meet licensing and continuing education, account statement and net capital requirements. Under current securities rules, advisers do not have obligations in those areas, while brokers do.

But the Investment Adviser Association told the agency in a comment letter Friday that the new adviser regulations are misguided because of differences in adviser and broker business models. Instead, the SEC should concentrate on raising the advice standard that brokers must meet, which is the major proposal in the reform package.

"We strongly urge the commission not to consider imposing unnecessary and ill-fitting broker-dealer regulation on investment advisers as part of this critically important standard of conduct package," Karen Barr, IAA president and chief executive, wrote in the letter. "The commission has not explained how potential additional regulation of investment advisers would address this goal, nor has it provided adequate support for how it would benefit advisory clients."

Ms. Barr argues that advisers do not need a net capital requirement because advisers, unlike brokers, do not maintain custody of client assets or engage in principal trading and market-making activities.

"Contrary to a broker-dealer insolvency situation, clients do not risk loss of their assets when their investment adviser goes out of business or becomes insolvent," Ms. Barr wrote. "Because an investment adviser acts merely as an agent in managing assets on behalf of clients, clients' assets are protected even if the adviser becomes unable to provide services."

In a July 31 comment letter, Ken Fisher, executive chairman of Fisher Investments, asserted that the SEC's capital proposals "make no sense" if applied to advisers who don't hold client funds.

"If, at any time, the client does not like the advice being given or does not like how the portfolio is being managed, the client has full access to and control over the assets by going to the custodian," Mr. Fisher wrote.

A new regulation requiring that advisers send account statements to their clients is not needed, Ms. Barr said, because advisers already bill clients directly for advisory fees or the client's custodian sends a statement that includes the amount charged for advisory fees.

She asserted that licensing and continuing education requirements for personnel of investment advisory firms would be redundant because of existing state licensing and qualification requirements.

The American Council of Life Insurers also pushed back against licensing and continuing education for investment adviser representatives.

"ACLI believes that such proposed 'enhancements' are aiming to fill a perceived gap that does not exist," ACLI counsel Jigar Gandhi wrote in a comment letter Friday. "ACLI believes that creating a parallel continuing education and licensing scheme to those of broker-dealers is a potential solution in search of a problem."

The deadline for comments on the SEC advice rule is Aug. 7.


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