Corporate Governance

42nd Annual Rocky Mountain Securities Conference: Mutual Funds, Broker Dealers and Investment Advisors: Risks and Approaches to a Changing Market

By Charles Nichols

Last Friday, May 7, 2010, the Rocky Mountain Securities Conference featured a panel that discussed the changing risk and regulatory market as it affects Mutual Funds, Broker Dealers and Investment Advisors.  The panel consisted of John McDermott (Brownstein Hyatt Farber Schreck), Steven Stone (Morgan, Lewis & Bockius), Carlo di Florio (SEC), and moderated by Kevin Goodman (SEC). 

The panel began with a discussion of the changes forthcoming in SEC examinations of broker dealers.  Mr. di Florio mentioned that the Commission will attempt to target their exams and do more of their own due diligence before prior to investigation.  This approach moves away from 'form exams' as they exist today.  This narrower focus will allow Commission staff to focus on integrity in the markets and prevention of fraud.

The panelists moved on to discuss the themes of current regulatory reform efforts. When discussing Senator Dodd's bill, the major themes discussed were: (1) creation of a counsel for financial stability; (2) ending the notion of 'too big to fail'; (3) restricting banks from proprietary trading; (4) hedge fund regulation; (5) OTC derivative reporting requirements; and (6) regulation of financial professionals.  This final category is of personal interest to me, as someone with prior broker-dealer experience, so I will provide more detail on that discussion.

The panel's discussion of financial professional regulation focused on the idea of treating brokers as fiduciaries.  One new proposal calls for an explicit duty on the part of the registered representative, with the violation of such duty imposing criminal penalties.  The difficulty with such a proposal is defining its scope. Questions must be addressed, such as, (1) how would such a plan impact customer initiated transactions?; (2) how long would the duty exist after a broker recommended purchase?; (3) how much further would such a duty extend expectation to 'know one's client'?; and (4) what impact would this have on the recommendation and sale of proprietary products by registered representatives? Clearly, according to the panel, there is need of further discussions to flesh out, in much more detail, the overall impact of imposing such an explicit duty.  

Thank you again to the panel for their thoughts and to the CBA for including The Race to the Bottom in this year's Conference. ?

Full post as published by The Race to the Bottom on May 12, 2010 (boomark / email).