Tags: broker-dealers | client communications | compliance | FINRA | investment advisors | RIA compliance | Social Media

Thanks to a seemingly innocuous Facebook posting by its Chief Executive Officer, Netflix is facing the prospect of the Securities and Exchange Commission bringing a civil action against the company and the CEO. 

In July, the CEO cheerfully revealed to 200,000 Facebook followers that Netflix subscribers had watched a billion hours of online videos the previous month.  Despite the seemingly trivial nature of this posting, the SEC has issued a Wells Notice to Netflix and its CEO, indicating that the agency is contemplating civil action for possible violations of Reg FD about disclosures public companies make to invetsors. 

While some say the SEC is overreaching, the incident is a stark reminder that Broker-Dealers and Registered Investment Advisors can face regulatory problems if associated persons misuse social media in connection with their jobs, and that registered representatives as well as IA reps need to know the current state of the law in this area.

While social media sites like Facebook, LinkedIn, and Twitter hold great potential for marketing financial services, FINRA constraints mean such sites pose some regulatory risk.
 

Supervision is key, and firms’ legal and compliance departments need to stay current with both changes in technology and the law.  Securities firms examine their social media policies, oversight and training, and implement protocols for prepublication review of social media postings by all personnel. 

As we have learned, even seemingly innocuous posts on Facebook can trigger unintentional regulatory scrutiny that cause needless distraction from running your business.

Tags: Dodd-Frank | hedge funds | sec

Tags: sec

After nearly four years in office, SEC Chairman Mary L. Schapiro today announced that she will step down on Dec. 14, 2012. Schapiro served as chair through one of the most turbulent times in financial history.  It's rare for the SEC chair to serve more than four years and Schapiro for months had reportedly told those close to her she was exhausted, having served at a time when the agency was held in low regard after the lax regulation that led up up the financial crisis.

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While no clear successor to Ms. Schapiro has been publicly discussed by the Obama admnistration,  The New York Times is reporting that Mary J. Miller, a senior Treasury Department official, is under consideration for the job. Others reportedly in the running: Sallie L. Krawcheck, a former top executive at Citigroup and Bank of America and SEC enforcement chief, Robert Khuzami

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Tags: fiduciaries

Don Trone, widely considered the founding father of the fiduciary movement among private wealth advisors, is known for saying what he thinks. So I asked his opinion about the very public disagreement between Kevin Keller, the head of the CFP Board, and Allan Roth, a CFP and blogger for The Wall Street Journal. Trone, the founder and CEO of 3ethos, which trains fiduciaries, did not hold back.

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Secondly, since July 1, 2008, CFP certificants have been subject to a fiduciary standard. “I’ve been told that there is language which permits the certificant to opt out of the fiduciary standard if certain conditions exist,” Trone says. “On the other hand, you have a statement from Kevin Keller which appeared recently on a blog: ‘The CFP Board is a 501(c)(3) nonprofit whose mission is to benefit the public and we take that charge seriously by being the only financial planning designation that requires and enforces a fiduciary standard of care.’  

“Kevin doesn’t mention any exceptions, so I guess we can assume the fiduciary standard applies to all CFP certificants at all times,” says Trone.

Lastly, the CFP Board is publicly advocating a fiduciary standard; in its advocacy, it doesn’t mention allowing CFPs to opt out, Trone says.

When you consider these three elements collectively, Trone says you must come to the conclusion that the fiduciary standard applies to all CFP certificants, no matter whether that are registered reps or investment adviser reps.  “Which brings up the logical follow-on question,” says Trone. “What is the CFP Board’s fiduciary standard?”

A standard, says Trone, is defined by “principles and practices, and often times includes safe harbor procedures to insulate a professional or an organization from the unintended consequences of applying a particular standard.”

The CFP Board has done an excellent job of communicating the principles of a fiduciary standard — that a client’s interest comes first — but, says Trone, “I don’t believe they have published anything on the associated practices.”

On behalf of the FPA, Trone says he took a stab at aligning fiduciary practices with the six-step financial planning process and, in turn, the CFP Board’s practice standards. “Unfortunately, we can’t get the CFP Board to approve the work for CE because it is considered practice management, has proprietary content, and references leadership behaviors,” says Trone.

(By the way, if any CFP certificant would like a copy of the “banned-in-Boston” fiduciary standard Trone prepared for financial planners, This e-mail address is being protected from spambots. You need JavaScript enabled to view it . He’ll send it to you. “It will arrive,” he jokes, “in a brown wrapper.”

On a related note, Trone says advisors didn’t score very well in implementing practices associated with a fiduciary standard according to the 2012 Fiduciary Impact Survey. Yes, they scored well on the principles, but not the practices, Trone says.

Financial planners, as a practice area, didn’t score as well as other practices areas, such as retirement advisors and wealth managers. “To the CFP Board’s defense, we did not ask respondents to identify their professional designations, so there is no way of knowing whether CFP certificants would have scored higher,” Trone says. “Next year (this will be an annual survey) we will include designations so we’ll be able to isolate the scores of CFPs vs. other designations and practice areas.”

As for whether those who hold the CFP and who work for a brokerage firm could comply with the CFP Board’s fiduciary standard, Trone says the answer is yes, but. “The issue for the organization is whether the certificant’s fiduciary acknowledgement might blow a fiduciary circuit breaker elsewhere in the factory,” Trone says. “This is the reason why a fiduciary safe harbor is so critical, and why the B/Ds are not going to budge on a uniform fiduciary standard until they get one – and I can’t blame them. There are too many unknowns associated with adopting a uniform standard.”

So, this is what Trone would propose as a fiduciary safe harbor procedure:

• The firm must define minimum qualifications (in terms of experience, licensing and training) for advisors who wish to serve in a fiduciary capacity;
• The advisor must accept and acknowledge their fiduciary status in writing;
• When serving in a fiduciary capacity, the advisor must agree to only utilize investment products, data bases, software and technology approved by the firm;
• The advisor must agree to maintain records which demonstrate the advisor's procedural prudence (the details of the advisor's decision-making process); and
• The activities of the advisor must be monitored by the firm.