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Regulatory
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If You Get A Letter Of Inquiry From FINRA, The Best Action Is To Answer It |
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Friday, May 04, 2012 16:15
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Tags: compliance | FINRA | sec
FINRA plays a significant role in alerting the SEC to insider trading infractions. As an industry watchdog, the regulatory group gathers information on firms even beyond their broker-dealer scope to assess whether trading activity is suspicious. Particularly when unusual trading activity occurs, letters of inquiry will be sent to all firms involved. This Website Is For Financial Professionals Only
If your firm receives an inquiry letter, it’s best not to ignore it or to consider it routine. The information sought includes what was known at the firm and by whom before the trading activity occurred. Both FINRA and the SEC keep historical trading data on various issuers and markets, looking for patterns that may alert them to suspect activity.
After the letter is sent and your firm responds, you’re likely to get a second letter seeking any connection within your firm to the list of individuals and entities they have identified as being involved in that particular trading activity. Broker-dealers are mandated to respond to FINRA inquiries but other firms may be put on a watch list or have their names sent to the SEC if FINRA feels a firm is not cooperating.
The best action is to respond, be cooperative, and to maintain a good relationship with FINRA. Not responding can result in an SEC subpoena. Responding to a subpoena can be much more involved than responding to a letter of inquiry from FINRA, even though FINRA technically has no jurisdiction over firms other than broker-dealers. It may be a good idea to get a lawyer’s advice in responding to an inquiry letter. This can guarantee that an appropriate response is given and that all required documentation is submitted. Time-consuming though it may be, responding to such a letter will likely be much better than taking a chance by ignoring the request.
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Benchmarking Target Date Funds Should Be An Easy Decision: Procedural Prudence |
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Thursday, May 03, 2012 19:04
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Tags: 401(k) | Due Diligence | target date funds Fiduciaries have a duty to monitor and evaluate their target date funds’ (TDF) performance, but what's the right benchmark?
This Website Is For Financial Professionals Only
As with all performance evaluations, peer groups are awful benchmarks. Everyone with a CFA has learned of the problems with peer groups as benchmarks. In the case of TDFs, peer groups fail because there is a wide dispersion in asset allocations across TDFs, especially near target date, so there is little comparability, despite efforts to adjust for this serious deficiency.
As for indexes, there is much confusion and debate surrounding the choice of index because there are so many.
As a practical matter, however, fiduciaries really only have 2 choices for TDF benchmarks, as described Procedural Prudence. Following the crowd could lead to lawsuits. As they say in the tax-shelter business, "check with your attorney."
The patent-pending Safe Landing Glide Path is the fiduciary Substantive Prudence choice of benchmark. One of the key criteria for a good benchmark is that it should be investable. The SMART Funds of Hand Benefit & Trust, Houston, follow the SLGP so SMART is a benchmark. It’s a benchmark that no one beat in 2011. Shocking. Importantly, the SLGP also makes a prudent blueprint for model TDFs.
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The Battle Between SIFMA And The Institute For The Fiduciary Standard Heats Up |
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Thursday, April 26, 2012 15:47
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Tags: fiduciaries | sec | SIFMA
The battle over the appropriate application of the term “fiduciary” has intensified toward an industry organization, the Securities Industry and Financial Markets Association (SIFMA). The Institute for the Fiduciary Standard, an organization that represents investment advisors, has accused SIFMA of trying to misapply the term in an effort to water down the application to brokers. This Website Is For Financial Professionals Only
Although the SEC and the Department of Labor are working intently to formulate a universal standard, the Institute says there are still multiple issues to resolve.
SIFMA members claim that most brokers already function as fiduciaries despite the fact that they sell products and services. The Institute states that this application of the term is in conflict with the Dodd-Frank Act which stipulates that the strength of a uniform standard must match that of Section 206 of the Investment Advisors Act of 1940. The Institute recently sent a letter to the SEC outlining its position and further criticizing SIFMA’s stance.
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Cost-Effectiveness May Derail DOL's Expanded Application Of "Fiduciary" |
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Wednesday, April 25, 2012 14:33
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Tags: fiduciaries | regulation
The latest development in the Department of Labor’s (DOL) effort to include retirement plan advisors as fiduciaries is centered on cost effectiveness. The expanded application of fiduciary duty would reach advisors who manage individual retirement accounts (IRAs). This Website Is For Financial Professionals Only
Since this would be the first time that IRA advisors would be under the fiduciary umbrella, opponents have insisted on a cost/benefit analysis before the DOL resubmits its proposed rule. The expanded regulatory environment is a result of the 2008 credit crisis, including the discovery of Ponzi schemes promulgated by Bernard Madoff, Alan Stanford, and others.
The securities industry has pushed back on legislation ranging from the Dodd-Frank Act to the current DOL’s attempt to expand the definition of a fiduciary. Commentary from industry participants greatly toned down edicts of the Dodd-Frank Act. Pressure from the industry also resulted in a withdrawal of the DOL’s original attempt to broaden the scope of fiduciary responsibility.
Opponents have said the expansion to include IRA advisors goes too far and addresses problems that have not yet arisen. The concern is that added costs incurred by the expanded definition would make it difficult for middle-class investors to bear. Proponents say that investors at all asset levels are at risk unless all advisors are required to act in a fiduciary capacity.
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New Bill Will Propose FINRA As Industry SRO |
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Monday, April 16, 2012 14:16
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Tags: compliance | FINRA | regulation
A Republican bill that would make FINRA the regulatory body for investment advisors may soon come on the floor. Republican Spencer Bachus is drafting the legislation and is expected to introduce it to Congress next week. Objections are strong to FINRA becoming a self-regulatory body for the financial industry. Those opposed to FINRA having such a strong position say that the organization is more closely tied to a suitability frame of reference rather than a fiduciary one. This Website Is For Financial Professionals Only
Suitability is the standard for brokers at large financial institutions; investment advisors are held to a more strict fiduciary standard. Michael Oxley, of Sarbanes-Oxley fame, supports the move and is seen as instrumental in achieving it.
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