More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
Dale Brown took a deep breath before launching into a discussion of the state of regulation. Who can blame him? Appearing in our annual Broker-Dealer Career Guide is old hat for Brown, president and CEO of the Financial Services Institute, and it is an election year, so at this point it’s a topic he can repeat in his sleep. Still, what he has to say is of critical importance to our readers and the viability of their business, and he was more than happy to detail the advocacy organization’s efforts on behalf of its members.
“I want to emphasize that we are not a partisan organization,” Brown diplomatically began. “It doesn’t matter if a Democrat or Republican won the election; quite frankly, we’d be having the same conversation if Romney won.”
But Romney didn’t win, and Brown continued, “With that said, as an organization, we have to be politically astute enough to recognize the current political realities and plan accordingly.”
Like many political observers, he called the election a vote for the status quo; a vote to keep a Democrat as president and to increase their hold of the Senate, but at the same time to ensure a divided government with Republicans retaining control of the House.
“This means elected leaders certainly have some challenges, gridlock being among the most obvious,” Brown added. “For broker-dealers and advisors, it means there won’t be a lot of relief from the horrendous regulatory environment, at least not in the near term.”
As for where FSI will focus its efforts in 2013, not much will change from 2012, according to Brown. The organization will continue to engage politicians on relevant legislation affecting financial services firms. Specifically:
-- Worker classification: “We’re concerned about the ability to maintain the independent contractor status, and have been for some time. There’s a possibility it might get swept up as part of a ‘grand bargain’ having to do with some other unrelated piece of legislation.”
-- Definition of fiduciary: “We were able to secure a short-term victory when the Department of Labor withdrew its proposed fiduciary rule. But we anticipate the re-proposal of the definition of fiduciary sometime in 2013.
-- Dodd-Frank: “There are several aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act that we’re watching closely. We’re also keeping an eye on a new uniform fiduciary standard from the SEC, and there’s still plenty to be done with rule harmonization, over and above the SRO issue. But we think a lot of this could be a net positive.
“Ultimately, we will continue to ensure our members have a seat at the table on regulatory matters that affect them,” he stated.
Brown also addressed FSI’s “five-year plan,” currently at its midpoint.
“We undertook [the plan] to ensure we are the most effective organization we can be in representing the views of our members in Washington,” he said. “We will continue to execute on that plan, but make tweaks and adjustments as necessary.”
He noted the organization’s 100 member firms and 35,000 financial advisor members, a membership trend he feels can be sustained.
“We’ve seen growth in our revenue, which allows us to invest in our staff and other resources to increase our breadth and depth.”
As for the biggest industry news of the past few months, the impending departure of SEC Chairman Mary Schapiro, Brown was optimistic about her proposed replacement.
“We have been privileged to have a constructive relationship with Elisse Walter in the past,” he said. “She has a good, strong understanding of the issues and an understanding of advisors’ role in the industry and their clients’ lives. We get more than a fair hearing with her.”
Brown pointed to two challenges he believes the next SEC chairman will have to face. The first is that “the SEC has systemic problems that make it less than effective and will need to be addressed.” The second, somewhat related challenge is the fact that it only has four commissioners, and they are divided along partisan lines.
“It makes it extremely tough to get the necessary three-vote majority to move things along. Part of her charge is to bring about that consensus.”
FSI recently announced three new directors to its board, news that’s no doubt welcome relief for some, as it was accompanied by a corresponding announcement of a “strengthened focus” on the small and mid-size broker-dealer space. For a sector of the industry under regulatory and financial fire, with some questioning the ability of smaller broker-dealers to survive, the attention couldn’t come soon enough.
While FSI was quick to note “it continues to represent all independent financial services firms and independent financial advisors in Washington, D.C., and the states,” four of its 16 directors now come from small and mid-size firms and another four are independent financial advisors.
The three new members of the FSI Board of Directors are:
- David Stringer, President, Prospera Financial Services
- Stephen Chipman, President and CEO, Foothill Securities
- Dick Lampen, President and CEO, Ladenburg Thalmann Financial Services
“We want our board to reflect the diversity of our membership,” Brown said. “Over its nine-year history, we’ve had a board of leaders; some that are widely known throughout the industry, and others that are known by what they do with their firms.”
Because of its size, the small independent broker-dealer industry was disproportionately affected by recent regulatory actions in the wake of scandal, most notably involving the sale of products from Medical Capital and Provident Royalty, which proved unsuitable for many investors and were the subject of SEC enforcement actions, fines and class action lawsuits beginning in 2009. This, combined with increased costs associated with compliance and ongoing fee compression, has caused a number of smaller firms to close their doors.
In addition to the new directors, FSI also elected Larry Roth, CEO of Advisor Group, as the new chairman of the board. Mike Mungenast, CEO and president of ProEquities, was elected vice chairman and will serve a one-year term. He’ll then be in line to become chairman in 2014.
The rest of the board for 2013 reads like a who’s-who of the independent broker-dealer space: Joseph Russo, Advantage Financial Group (financial advisor and immediate past chairman); Tim Murphy, Investors Capital (finance chairman); Valerie Brown, Cetera (PAC chairman); Bill Dwyer, LPL Financial; Adam Antoniades, First Allied; Rick Carlson, Carlson Advisors; Dean Harman, Harman Wealth Management; Jim Herrington, Financial Services Network and Strategic Wealth Advisor Group; Jim Livingston, National Planning Holdings; John Moloney, Moloney Securities Asset Management; and Clive Slovin, The Strategic Financial Alliance.