Letters to IN: Risk assessment of firms is essential to compliance

I enjoyed the article “Post-crash, advisers yearn for structure” (May 17).

However, the comments from the firms quoted in the article are a bit off point. In essence, where is the risk assessment as part of the firms’ compliance programs?

I would think that a risk assessment of a firm would or should include looking at a relaxed environment in which roles and responsibilities aren’t clear; a lack of segregation of duties, or a small group of people in charge of accounting, operations, compliance, portfolio management, etc., making for a weakened control environment; and key-person risk, or what happens when a principal dies or is injured?

These are three small examples from what the Advisers Act Compliance Rule 206(4)-7 and Securities and Exchange Commission speeches would encourage firms to do in assessing and implementing a compliance program.

There should be a top-to-bottom assessment conducted of risks posed to the firm, not just “regulatory” but all risks (business, operational, regulatory, portfolio, investment, etc.).

There is a reason for compliance and its impact across the firm, especially when fiduciary obligations are involved.

For example, all advisers are required to have some form of privacy controls in place for client information, anti-money-laundering requirements, and a disaster recovery and contingency program, in case of a business disruption event.

Financial services firms must have disaster recovery and contingency plans in place. It is the type and breadth of problems that are the challenge, including assessing them.

Don’t we wish that BP PLC had adequate risk assessments in place?

If it did, the Gulf of Mexico would be protected because the risk assessment would have been high, and the mitigation would have been a priority, ensuring that the damage to the environment might have been for only hours. I have heard that BP’s assessment was: “This couldn’t happen.”

That same belief sank the Titanic. Unfortunately, people don’t learn.

Peter Mafteiu

Principal

Sound Compliance Services

Gig Harbor, Wash.

I read the ShopTalk column “Advisers’ biggest mistakes: Not delegating” (InvestmentNews.com, May 12).

You are right. It is a very common issue.

The idea of delegating makes sense to all financial advisers, but only the successful ones do it well.

Michael W. Byrnes Jr.

Founder and president

Byrnes Consulting LLC

Charlestown, Mass.

I shook my head when I read your front-page article “Advisers make mad dash for cash” (May 31).

Either this is irresponsible sensationalism by InvestmentNews or there are too many people who call themselves financial advisers advertising their own incompetence and ignorance.

If advisers have the right plan and strategy in place for clients, there is no need to make a mad dash for cash.

Advisers should have the right plan set up in the first place, and then they won’t need to make drastic last-minute changes.

In my opinion, if what the markets went through recently mattered to clients, and advisers felt the need to move to cash, then they have the wrong plan and strategy set up in the first place. It is time for those clients to find new advisers.

Scot Hanson

Certified financial planner

Educators Financial Services Inc.

Cambridge, Minn.

I would like to clarify the comments that were part of the article “Is U.S. Trust’s combo with BofA still A-OK?” (June 7).

In response to the inquiry, I had intended to provide some color on U.S. Trust, a company I was a part of until 2003, and to provide an outside perspective on the combined firm as a member of the same industry.

My observation was that over the years, Bank of America Corp. and Merrill Lynch & Co Inc. have created an efficient model for delivering service to their clients and that they are likely to have an effect on how U.S. Trust serves their clients. I don’t think that I implied that there would be any combination of the business units.

Sallie Krawcheck, president of BofA’s global wealth and investment management division, is a strong leader who has always focused on clients’ needs, and she has been clear that she expects to keep those units separate.

Harry O’Mealia

Chief executive

Legg Mason Investment Counsel

Baltimore

The Pershing executives quoted in the article “RIA biz isn’t a fad, Pershing execs say” (June 14) were on target.

Ultimately, the market will decide whether the traditional broker-dealer model is still sufficiently relevant to produce acceptable margins.

What the accelerating decade-long movement to the registered investment adviser model should clearly indicate to broker-dealer executives is that the traditional broker-dealer-only business model isn’t the future.

It is good news for broker-dealers because many firms have the capability to leverage existing infrastructure or partner with great firms such as Pershing Advisor Solutions LLC to provide relevant support for advisers who, in response to changing client expectations, elect to add an RIA offering to their client service model.

“Broker-dealer” is a regulatory label, which in and of itself doesn’t describe a business model. Advisers became affiliated with broker-dealers because they had to, not necessarily because they found value in the relationship.

The reason that payouts have reached north of 90% within the independent channel is because most broker-dealers offer very little tangible value, so the market (adviser) demands lower cost (higher payout) in the absence of value.

Some years ago, my predecessor (and our current vice chairman) opined publicly that he didn’t think it was likely that firms like ours would need to be a broker-dealer in the future in order to provide services for independent advisers.

Whether they are broker-dealers, RIAs or hybrid firms, what advisers and their clients have told us is that they expect us to respond to the way that they choose to do business, not demand that they adhere to outdated industry norms. So Capital Analysts Inc. is RIA/broker-dealer business-model-neutral.

What Pershing has done in recognition of the change in adviser and client behavior is leverage its capabilities in new ways.

From a competitive standpoint, I like the fact that many firms have elected to ignore the change. For the benefit of the industry, and perhaps its survival, I hope that more broker-dealers embrace these changes.

Matt Lynch

President and chief executive

Capital Analysts Inc.

Cincinnati