This year, Skip Schweiss, president of TD Ameritrade Trust Co., took on an additional role as managing director of advocacy and industry issues.
As such, on top of his day-to-day responsibilities overseeing TD Ameritrade's retirement services, he is busy talking to registered investment advisers and representing them on an array of issues.
Although advisers' top concern these days centers on how the Securities and Exchange Commission will define the role of a fiduciary, they have many other worries in the wake of the Dodd-Frank financial-reform legislation.
“Advisers are angry,” Mr. Schweiss said. “We have always had an evolution of regulation, but right now, we have an avalanche of it, and it's going to disrupt a lot of business models and cause tremendous work and expense.”
Q. What are the top three concerns that financial advisers have, beyond the definition of a fiduciary?
A. They are worried about the new ADV forms. Another thing is the move of oversight for advisers with [between $25 million and] $100 million in assets from the SEC to state regulators. The second thing is the custody rule. Even though that was the first significant regulatory change in the wake of the “great recession” and Bernie Madoff, it's still not completely settled. That has been a big one for advisers. That rule said that if you are the adviser with custody as defined in various ways, you have to get an independent audit by a [certified public accountant] firm by the end of the year. But there are a whole bunch of tests and questions about whether an adviser is the custodian. For example, the SEC has said that if an adviser may have the authority to change a client's address and the ability to authorize withdrawals from client accounts held at the custodian, the adviser has custody and may be subject to the independent audit requirement. There are ways to mitigate and manage that status, but it's an example of something advisers are concerned about.
Q. What are advisers worried about with regard to state oversight?
A. One thing is that right now, a lot of advisers have $95 million in assets under management. If they register with the state, what happens when their assets hit $100 million? Will the SEC create a buffer? That's what they did when they created the rule that advisers with less than $25 million are regulated by the states — there is a buffer of $25 million to $30 million. But they haven't done that yet here.
Q. Are advisers worried about the quality of the oversight by the state regulators, versus the SEC?
A. One thing people say is that the states are all financially strapped, and [they] ask if [states] really are going to have the resources to oversee effectively all of these new advisers that they are getting. The states are saying, “Bring it on. We are ready and better-equipped because these people are in our backyards, and we know them better and will be able to spot issues faster.” Now there are going to be additional fees that the states are going to charge. But there are some anomalies here. New York has no state examination function over investment advisers. Wyoming doesn't even register investment advisers. Now there are probably, like, three advisers in Wyoming, I don't know. But you have some of these things that need to be worked out.
Q. What concerns advisers about the new ADV forms?
A. It's a totally new format. They have to describe their business. Advisers are wondering, “How do I write this?” One concern I have heard is that these are going to be public documents, so it could really open up an adviser's business to a competitor down the street.
Q. Part of your role is explaining to advisers how the Dodd-Frank legislation affects them. What is their biggest surprise when you do this?
A. One thing is that the legislation gives the SEC the authority to mandate the removal of mandatory-arbitration clauses in client agreements. That means if the SEC says to remove this language and a client has an issue with a broker, the only means of dispute the client has is private litigation, which you could argue is more expensive and time-consuming.
On the other side, people have argued that the arbitration process tends to be skewed toward the brokerage firms. But I see a lot of eyes widen when I talk about that one.
E-mail Jessica Toonkel at [email protected].
