Update on investment advisers regulation: the proposed IARD and compliance issues.

• Author: Bernstein, Phyllis
• Position: Investment Adviser Registration Depository

On May 23, 2000, the U. S. Securities and Exchange Commission (SEC) held a roundtable on regulation of investment advisers. Chairman Levitt opened the roundtable with a keynote address, followed by a series of panel discussions moderated by officials from the SEC's Division of Investment Management.

Topics of the roundtable discussion included:

* Modernization of adviser regulation;

* Distinctions between advisers and broker-dealers;

* Persons excluded from the definition of investment adviser;

* Adviser trading practices, including the use of soft dollars and the obligation to seek best execution;

* Personal trading and other conflict-of-interest issues;

* Pay-to-play practices;

* Advertising and performance reporting; and

* Technology and adviser regulation, including a new electronic filing and registration system for investment advisers.

The first panel debated the scope of the Investment Advisors Act of 1940 (Act); among the participants was the AICPA's Director of Personal Financial Planning. The majority of the participants agreed that financial planning and investment advising are not the same thing; as such, there was no need for a self-regulatory organization for financial planning or investment advising. The president of the Financial Planning Association felt differently, expressing concern that the law is not uniformly applied to cover those who functionally provide financial planning and financial advising. He also clearly expressed that regulation for financial planning is needed, as investment advice is only one type of financial advice and the Certified Financial Planners (CFP) Board, currently the voluntary regulator, regulates only the 34,000 who hold the CFP designation.

It was interesting to note that the SEC staff view some financial planning activities as investment advisory and not others, commenting that it is theoretically possible to be a financial planner and not give any advice about securities.

While it is very likely there will be changes, the specific nature of those changes is difficult to forecast. The SEC can be expected to consider developing new rules on books and records, soft dollars, custody, advertising and performance reporting. It is very difficult to anticipate whether it will revise the definitions, and exclusions from the definition, of investment adviser.

The PFP Section of the AICPA will provide updates on changes to the investment adviser regulations and will continue to make its views known on how these changes might affect CPA financial planners and their clients.

IARD

The SEC and the state securities authorities are creating an Internet-based system of electronic filing for investment advisers. The system...