For Better or Worse

In a scathing indictment of the Securities and Exchange Commission’s approach to disciplining firms with inadequate succession planning, an editorial in Investment News criticizes the SEC’s “branding advisers as fraudsters”.

Although the article notes that the SEC should be credited for creating a high-priority mindset at advisory firms, it states that “the agency, in its effort to try to wrestle back control of the advisory space from prudential regulators muscling in through the Financial Stability Oversight Council, which was created by the Dodd-Frank Act, may be overzealous in terms of disciplinary action.”

Pointing to the dichotomy between the support of industry lobbying and advisory groups but their opposition of the concept of holding advisers responsible (and liable) for fraud if they don’t have appropriate continuity plans. These groups, says the article, also oppose elements of the new SEC business continuity plan rule, despite existing rules about “fiduciary obligation”.

The article also points to the temporary shutdown of advisory firms post Hurricane Sandy, after a risk alert was issued about 40 advisers.

The editorial points to the effectiveness of the “potential scar of a fraud label” to draw attention to the issue in the industry. “Now that the SEC has gotten everyone's attention, it is time for calmer heads to prevail,” states the article. “Keep the heat on continuity plans, but take fraud off the table. Replace it with something more appropriate by at least starting with a fine.”