Archive for May, 2016

“Two sides of the DOL fiduciary rule’s ‘Best Interest Contract Exemption’ advisers must understand” @danbernstein to @GregIacurci @newsfromIN

Tuesday, May 31st, 2016

Dan Bernstein spoke with InvestmentNews about the BICE and rollovers:

“If they can’t handle the analysis on the client’s current situation, then they won’t be able to recommend a rollover,” said Daniel Bernstein, chief compliance counsel at MarketCounsel, a regulatory compliance consulting firm.

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SEC Proposes Amendment to Qualified Client Standards

Wednesday, May 25th, 2016

On May 18, 2016, the U.S. Securities and Exchange Commission (the “SEC”) published a notice of its intention to issue an order to adjust from $2 million to $2.1 million the net worth threshold that clients must satisfy before they can be considered “qualified clients” to whom investment advisers can charge performance fees.

By way of background, Section 205(a)(1) of the Investment Advisers Act of 1940 (the “Advisers Act”) generally prohibits an investment adviser from “entering into, extending, renewing, or performing any investment advisory contract that provides for compensation to the adviser based on a share of capital gains on, or capital appreciation of, the funds of a client.”  However, Rule 205-3 under the Advisers Act provides an exception from this prohibition for certain qualified clients, including persons that (a) have a net worth (in the case of a natural person, together with assets held jointly with such person’s spouse) that the investment adviser reasonably believes to exceed $2 million immediately before entering into the advisory contract, (b) have at least $1 million in assets under management with the investment adviser immediately after entering into the advisory contract, (c) are “qualified purchasers” as defined in Section 2(a)(51)(A) of the Investment Company Act of 1940 and (d) are certain “knowledgeable employees” of the investment adviser (e.g., the firm’s executive officers and directors, as well as certain non-clerical employees that participate in the firm’s investment activities).  These protections are designed to ensure that many retail clients are protected from arrangements that incentivize investment advisers to take risks in managing such clients’ portfolios to bolster their advisory fees.

The proposed order is in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the SEC to adjust the “qualified client” dollar amount thresholds every five years for inflation.  The SEC last adjusted the net worth threshold from $1.5 million to $2 million and the assets under management threshold from $750,000 to $1 million on September 19, 2011.  This time around, while the SEC is amending the net worth dollar amount from $2 million to $2.1 million, the agency is not adjusting the assets under management threshold because the adjustment is not sufficiently large to be rounded to the next $100,000.

The proposed amendment will become effective sixty days after publication of the order adopting the proposal.  The new net worth threshold will only apply to advisory contracts entered into after the effective date of the order.  Once the amendment becomes effective, investment advisers may need to amend their compliance policies and procedures and private fund sponsors may need to amend their subscription documents to reflect the new net worth threshold.

Brian Hamburger @HDelux discusses the “Fiduciary rule: Should advisers wait to see who wins the White House?” at #ENVSummit @paikert @finplan @onwallstreet

Tuesday, May 24th, 2016

Speaking at the annual Envestnet Advisor Summit, Hamburger said that it should take fee-based investment advisers about “30 to 60 days of work,” including reviewing contracts and staff training to comply with the rule.

He went on to note that while advisers have until April 2017 to comply with the DOL rule, enforcement, or “effective mandatory compliance” won’t begin until 2018.

In the meantime, “the election could be disruptive to this rule,” Hamburger predicted, possibly resulting in the rule “going away all together.”

“There are no prizes for being first [to comply],” he told advisers attending the conference session on the DOL fiduciary rule.

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‘Fidelity Celebrates Financial Advisors Who Are Building Great Businesses’; @HDelux Returns as Judge. @Fidelity4RIAs @FidelityNews

Tuesday, May 24th, 2016

Fidelity Clearing & Custody Solutions, the division of Fidelity Investments that provides clearing and custody to registered investment advisors (RIAs), retirement recordkeepers, broker-dealer firms, banks and insurance companies, is now accepting self-nominations for the second annual Be Greater® Awards, an award recognizing RIAs that are taking their firms to the next level, evolving them into successful, growing businesses in today’s competitive and crowded marketplace.

Through May 31, 2016, Fidelity will be accepting nominations for the Be Greater® Awards, an opportunity for firms to reflect on and be recognized for what they have done to build great businesses. Winners will be chosen by an esteemed panel of industry professionals: Karen Barr, Investment Adviser Association; Joel Bruckenstein, Technology Tools for Today; Mindy Diamond, Diamond Consultants; Beverly Flaxington, The Collaborative; Brian Hamburger, MarketCounsel and Philip Palaveev, The Ensemble Group.

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The Campaign for Investors us underway with great momentum, thanks to @CmtForFiduciary.

Tuesday, May 24th, 2016

From former SEC Commissioner, Luis Aguilar, to Assistant Secretary for the Department of Labor, Phyllis Borzi, to Chairman Emeritus of Vanguard, John Bogle, the fiduciary stars were out last night at the Institute for the Fiduciary Standard’s kickoff to the Campaign for Investors.  At a gathering of, perhaps, the most prolific group of fiduciary leaders, from academia, government, industry, and the press, Brian Hamburger @HDelux was humbled to be part of an intimate dinner in Philadelphia last night.

“Envestnet Advisor Summit 2016: Fiduciary Rule Bad for Long-Term Business” @HDelux to @401keditor @401kspecmag #ENVSummit

Monday, May 23rd, 2016

An early afternoon interview on an outdoor patio adjacent to the Chicago Hilton brought welcome relief for Brian Hamburger from the hustle and bustle of the Envestnet Advisor Summit 2016.

The compliance giant and president and CEO of MarketCounsel was a panelist for (what else?) a panel on the DOL’s fiduciary rule earlier Thursday. Moderated by Lincoln Ross, executive vice president and head of product strategy and marketing for Envestnet, the lively conversation also included Clarke Camper, senior vice president of government relations with American Funds, as well as Pam Krueger, founder and CEO of WealthRamp. The topic was still top of mid for Hamburger.

“We’re not unhappy about it,” Hamburger said, when asked for his initial reaction. “But we can aspire to do it a better way.”

He noted that the rule set out to accomplish two goals; better investor protection and to help cure market confusion they might have.

“The DOL was adequate on the first part, but went in the opposite direction on the second part,” he bluntly stated.

“It’s good for short-term business, as there is a flight to quality counsel as they try to figure it all out. But we ultimately benefit when the industry is successful, and in that regard, it’s not good for long-term business. The lawsuits will have a greater impact in changing behavior than the DOL ever could.”

Inquires surrounding the fiduciary rule and coming from think tanks and similar organizations, as well as broker-dealers “who are finally getting real about how they handle RIAs.”

“Mark Hurley tapped into something with his whitepaper a few years ago, which is that for whatever reason, advisors want to read about their demise. No matter the disruptor, whether it’s robos or fiduciary, they want to hear about it. But I just don’t see it. At the end of the day, technology has little value without humans, and vice-versa.”

As for MarketCounsel’s overall growth in the wake of these issues, Hamburger said it’s 20 percent to 30 percent annually.

“We continue to grow, but not past our capabilities where we can’t fully service our existing clients. Right now we’re spending a lot of time sharpening our tools.”

MarketCounsel has also made a splash in the conference space, landing such controversial speakers as Tony Robbins, Eliot Spitzer, and even an onstage meeting between Mark Cuban and former SEC chairman Chris Cox, who once sued Cuban for insider trading.

As for this year’s lineup in Miami in December, Hamburger is understandably mum, as it’s still early on in the planning process.

MarketCounsel, founded in 2000, describes itself as a “leading business and regulatory consultancy to some of the country’s preeminent independent investment [advisors] throughout their lifecycle.”

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‘Befuddled Clients, Compliance Headaches Worry Advisors in Wake of DOL Fiduciary Rule’ @HDelux to @Think_DanielleA @ThinkAdvisor

Monday, May 23rd, 2016

Brian Hamburger, founder, president and CEO of MarketCounsel, said investor confusion is one of the most significant issues the rule addresses, although “it may not be the best way to address it,” he said.

Investors don’t understand the distinctions between a broker and advisor, or fiduciary and suitability standards, he said.

The DOL has indicated it’s willing to tweak the rule in the coming months as it receives industry feedback, Hamburger said.

“What this rule really does is create another standard of care” for different kinds of accounts, he said.

Enterprises have several things they need to do in the next several months to comply with the rule, Hamburger said. Fee-based advisors have “generously 30 to 60 days of work to take a look at client contracts, take a look at policies and procedures, marketing materials [and] staff training,” he said.

Since full enforcement of the rule won’t happen until January 2018, the presidential election “could really be disruptive,” he said.

Lawyers are the real winners in the fiduciary rule, Hamburger said, whether they’re litigating for investors or helping advisors comply with the rule.

In an interview on Thursday, Hamburger said he has “pretty low expectations on the SEC’s ability to engage in rulemaking,” and said that the agency should have come out with its own rule “years ahead of the DOL [which] probably would have negated the DOL even having to take this type of action.”

He said an SEC rule would probably have made the DOL rule “meaningless because it would have broader implications. It would also do more to cure investor confusion.”

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Brian Hamburger @HDelux addresses hysteria over the new DOL rules @RIABiz @marionasnes

Monday, May 23rd, 2016

MarketCounsel’s CEO Brian Hamburger addressed the mass hysteria over the new DOL rules with characteristic sangfroid.

“For a small to mid-sized fee-based advisors, DOL is like the election: There’s a lot to do but not right now.” His reasoning is that the hype has gotten ahead of the need to change. Rules aren’t written indelibly yet and we have a big election coming up, with candidates that have very different attitudes about regulation. Hamburger counseled patience until a new administration comes to power. Of course, at that point, we’ll all be asking him to pick up the pieces.

To Hamburger, the more immediate compliance problem for advisors lies is cybersecurity. His message: The SEC is focused on it. Much more important, your clients care about it deeply. There have been too many hacks, too many identities stolen, for any conscious being not to feel vulnerable. (This reporter now has to file an affidavit with her tax return every year, after multiple false returns were filed in her name.) See: Schwab CEO issues ‘sincere’ apology, reassures on data security and calls attacks a ‘fact of life’ after website goes down.

“Cybersecurity may not be a reason clients hire an advisor, but it is a reason they fire,” he added.

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