August 7, 2018
1. Federal Licensing and Continuing Education
Should there be federal licensing and continuing education requirements for personnel of SEC-registered investment advisors? Specific Questions to answer:
· Which advisory personnel should be included in these requirements? There should not be licensing requirements for personnel that do not solicit trades or meet with clients. Administrative workers and office personnel could be required to take applicable CE requirements, as long as it would be beneficial to their specific job requirements and not be too extensive.
· How many hours of education should be required? Depending on the position and how closely they are working with clients, meeting preparation, and client paperwork processes, the amount of hours could be from 1-3.
· Should these individuals be required to pass examinations, such as the Series 65 Examrequired by most states, or to hold certain designations, as a part of any registration requirement? Absolutely not, there should be positions available to those who are not interested in studying for grueling licensing exams, and it is important for business continuity that new hires can be made quickly and painlessly.
· If continuing education requirements are a part of any licensing requirements, should specific topics be required? For example, these individuals could be required to complete a certain amount of training dedicated to ethics, regulatory requirements or the firm’s compliance program. Yes, specific topics that are deemed applicable to certain jobs would be a good thing to re-visiting.
· What other types of qualification requirements should be considered, such as minimumexperience requirements or standards regarding an individual’s fitness for serving as aninvestment advisor representative? None, I think being flexible on qualifications provides greater opportunity to find the right fit. It also allows capable people from different backgrounds to make the fit. The best person for certain jobs may not always have a financial background.
2. Provision of account Statements
Should we propose rules to require registered investment advisors to provide account statements, either directly or via the client’s custodian, regardless of whether the advisor is deemed to have custody of client assets under Advisors Act Rule 206(4)2 or the advisor is a sponsor (or a designee of a sponsor) of a managed account program relying on the safe harbor in Investment Company Act rule 3a-4. Specific Questions to answer:
· To what extent do retail clients already receive account statements? They receive way too many statements! They receive statements from every single custodian they invest with, as well as a consolidated statement from their investment advisor. They receive trade confirmations, new account confirmations, prospectuses for every single fund the advisor buys and sells out of... and all this just creates confusion and frustration from clients about getting too much mail, or not knowing why they are getting certain correspondence from the custodians.
· To what extent do those account statements specify the dollar amounts charged for advisory fees and other fees (e.g., brokerage fees) and expenses? All of the statements from the custodians show our advisory fees.
· Would retail clients benefit from a requirement that they receive account statements from investment advisors? Our retail investors already receive statements, but it should not be required, where clients are already overwhelmed with all of the different statements they are receiving.
· What other information would be useful for retail clients to receive on account statements? Custodians should provide a simple summary report on page one of their statement including fees, YTD, and one year returns – Most clients complain that their statements are too hard to read. I think it should be required to label very distinctly on statements what kind of account it is. I've seen a lot of statements that never tell you if the money is qualified or non-qualified, and that is a very important thing to know about your money before making decisions. I've known people who thought their advisor sold them bonds, and instead it was a variable annuity, because it wasn't labeled.
· How often should retail clients receive account statements? Quarterly
· How costly would it be to provide account statements? Our firm uses Orion to send our internal statements, and it costs $60,000/year, which would be a substantial cost for many firms. The custodian would better be able to provide the desired type of statements than the Investment Adviser.
3. Financial Responsibility
When the SEC discovers serious fraud by an advisor, often the assets of the advisor are insufficient to compensate clients for their loss. In addition, investment advisors are not required to obtain fidelity bonds unlike many other financial service providers that have access to client assets.
· Should SEC- registered investment advisors be subject to financial responsibility requirements along the lines of those that apply to broker-dealers? No.
· Is there a need for minimum capital or financial responsibility requirements? No.
· Is there a need for fidelity bonds? Fidelity bonds should only be imposed upon a fraudulent RIA.
· Should advisors be required to obtain annual audits for their financials? Annual audits should only be required for fraudulent firms until their track record is fixed.
With regard to the fiduciary responsibility proposals, it’s important to realize that protections need to be considered on both sides of the RIA/client relationship. Advisors need to be held accountable for fraud, theft and other serious crimes, while frivolous claims against good advisors that are working hard in the client’s best interest must be allowed protection as well. Advisors, clients, staff, and businesses need to be protected from frivolous claims by clients, class action attorneys, and others.
I have always been a believer in business and family that I should never ask anyone to anything that I myself am not willing to do. Both advisors and the SEC should be held to a high standard of conduct. Rules and penalties should be equal for both advisors and regulators as it keeps the playing field even for all.